Summary of the Central Bank of Turkey's Monetary Policy Committee Meeting Released
The summary of the meeting held by the Monetary Policy Committee of the Central Bank of the Republic of Turkey on November 21, 2024, has been published. During the meeting, global economic developments, monetary and financial conditions, demand and production data, and the state of inflation were discussed. The committee emphasized that while maintaining the policy interest rate, the stance of a tight monetary policy will continue. It was noted that decisions to be taken in line with the goals of correcting inflation and ensuring financial stability were also discussed at the meeting. The key topics highlighted in the meeting summary are compiled below.
Global Economy and Trade Throughout 2024, the global economy continues to show limited growth. The global growth index, weighted by the export shares of Turkey’s foreign trade partners, increased by 2.0%, compared to 1.8% in 2023. While the services sector shows a positive trend, the manufacturing industry remains weak. The US economy is performing more positively than other developed countries. Supply-side factors and geopolitical risks are affecting commodity prices in a volatile manner. While global inflation is on a downward trend, price rigidities, particularly in the services sector, keep upward risks alive.
Monetary and Financial Conditions Interest rates on TL deposits remained steady at around 56% in October and November, while TL commercial loan interest rates decreased by 382 basis points to 52.7% during the same period. Individual consumer loan rates were 70.4%, and housing loan rates were at 40.9%. The Central Bank’s gross international reserves fell to $156.68 billion. The required reserve ratio for short-term TL deposits was raised from 15% to 17%, while the required reserve ratio for foreign currency deposits in TL decreased from 5% to 4%.
Demand and Production In September, retail and trade sales volume indices increased, but service production declined. The industrial production index rose by 1.6% month-on-month after seasonal and calendar adjustments, while it decreased by 2.4% year-on-year. The unemployment rate was reported at 8.7%. A monthly surplus of $3 billion was recorded in the current account balance, bringing the 12-month cumulative current account deficit down to $9.7 billion.
Inflation Developments and Expectations In October, the consumer price index increased by 2.88%, bringing annual inflation down to 48.58%. While food prices rose, inflation in the services and energy sectors decreased. The producer price index fell to 32.24%. Surveys conducted in November revealed a partial increase in inflation expectations.
The Central Bank maintains its cautious stance: Emphasis on tight policy for the inflation target The Monetary Policy Committee decided to keep the one-week repo auction rate, which is the policy interest rate, at 50%. The committee stated that the decisive stance in monetary policy will help reduce the main trend of monthly inflation through balancing domestic demand, real appreciation of the Turkish lira, and correction of inflation expectations, thereby strengthening the disinflation process. Additionally, it was expressed that increased coordination of fiscal policy will significantly contribute to this process. The committee stressed that the stance of tight monetary policy will be maintained until a clear and persistent decrease in the main trend of monthly inflation is achieved and inflation expectations approach the projected forecast range. The level of the policy interest rate will be determined in a way that provides the necessary tightness for the disinflation process, taking into account actual inflation outcomes and expectations. The cautious stance against upward risks on inflation has been reiterated, and it was noted that if a clear and persistent deterioration in inflation is anticipated, monetary policy tools will be used effectively.
In case of unforeseen developments in the credit and deposit markets, it was stated that the monetary transmission mechanism would be supported by additional macroprudential measures. It was emphasized that liquidity conditions are closely monitored in light of potential developments and sterilization tools will continue to be used effectively.
The committee indicated that it would take monetary policy decisions recognizing the lagged effects of monetary tightening, in a way that would reduce the main trend of inflation and ensure that inflation reaches the medium-term target of 5%. Indicators related to inflation and its main trend will be closely monitored, and all tools will be used decisively in line with the fundamental goal of price stability. Furthermore, it was stated that the decisions would be made within a predictable, data-driven, and transparent framework.