The Central Bank cut the policy rate from 18 percent to 16 percent. The discount was well above the expectations. The Bank had reduced the interest rate by 100 basis points at the meeting on September 23. After the decision, dollar/TL rose to 9.48 and euro/TL to 11.05.

The Central Bank (CBRT) lowered the policy rate from 18 percent to 16 percent.

Despite the inflation approaching 20 percent, the bank, which cut interest rates by 100 basis points on September 23, made a 200 basis point cut today despite the sharp increase in the exchange rate.

With the decision of a hard interest rate cut, the dollar/TL jumped from 9.28 to 9.48. The level of 11 was exceeded for the first time in Euro/TL and the level of 11.05 was seen.

The following statement was made by the bank:

The Monetary Policy Committee (Committee) decided to reduce the one-week repo auction rate, which is the policy rate, from 18 percent to 16 percent.

Despite the recovery in global economic activity in the first half of the year, recently announced confidence indices started to decline due to the effect of the epidemic. Despite the increase in vaccination rates, new variants in the epidemic keep the downside risks on global economic activity alive. The recovery in global demand, the high course of commodity prices, supply constraints in some sectors and the increase in transportation costs cause producer and consumer prices to rise on an international scale. The adverse effects of the climatic conditions experienced in the major agricultural commodity exporting countries on global food prices are observed. While the effects of high global inflation on inflation expectations and international financial markets are closely monitored, central banks in developed countries consider that the rise in inflation will be mostly temporary, with the normalization of demand composition, the easing of supply constraints and the elimination of base effects. In this context, central banks of developed countries maintain their supportive monetary stances and continue their asset purchase programs.

Leading indicators point to a strong course of domestic economic activity also driven by foreign demand. The spread of vaccination throughout the society allows the services, tourism and related sectors that were adversely affected by the epidemic to revive and economic activity to be maintained with a more balanced composition. While the demand for durable goods slowed down, a recovery is observed in non-durable goods. With the strong upward trend in exports, the improvement in the annualized current account balance is expected to continue in the rest of the year, and it is important for the price stability target that this trend continues.

In the recent rise in inflation; Supply-side factors such as increases in import prices, especially in food and energy, and disruptions in supply processes, increases in administered/directed prices and demand developments due to opening are effective. These effects are considered to be caused by incidental factors. On the other hand, the slowing effects of strong monetary tightening on loans and domestic demand continue. The tightness of the monetary stance has started to have a contractionary effect on commercial loans beyond the anticipated. In addition, the positive effects of the strengthened macroprudential policy framework for retail loans to return to a moderate course have begun to be observed. The Committee evaluated the analyzes aimed at decomposing the effects of demand factors that can be affected by monetary policy, core inflation developments and supply shocks. In this context, the policy rate was lowered by 200 basis points and determined as 16 percent. However, the Committee has evaluated that there is limited room left until the end of the year for the downward correction in the policy rate due to supply-side incidental factors.

The Board also decided to support sustainable finance practices as a long-term policy, without changing the main objectives of the monetary policy, in order to limit climate and other environmental risks.

In line with its main objective of price stability, the CBRT will resolutely continue to use all the tools at its disposal until strong indicators pointing to a permanent decline in inflation emerge and the medium-term 5 percent target is reached. The stability to be achieved in the general level of prices will positively affect macroeconomic stability and financial stability through the decrease in country risk premiums, the continuation of reverse currency substitution and the upward trend in foreign exchange reserves, and the permanent decline in financing costs. Thus, a suitable ground will be created for the continuation of investment, production and employment growth in a healthy and sustainable way.

The Board will continue to take its decisions in a transparent, predictable and data-oriented framework.

The Monetary Policy Committee Meeting Summary will be published within five business days.