Economy in Turkey: Determined stance for 5% inflation target in the medium term
In the meeting of the Monetary Policy Committee (PPK) of the Central Bank of the Republic of Turkey (TCMB), it was stated that the determined stance to achieve the 5% inflation target in the medium term will continue. The Committee reiterated its cautious stance against the upward risks on inflation and decided to keep the policy rate unchanged.
Monetary Policy and Interest Rates
PPK emphasized that the tight monetary policy stance will continue until inflation expectations approach the forecast range. It was noted that if a significant deterioration in inflation is observed, tightening steps will be taken in monetary policy. Additionally, it was stated that with the increase in required reserves, the market liquidity surplus has been replaced by a liquidity deficit. It was noted that Turkish lira deposit rates decreased by 191 basis points to 56.15%, while commercial loan rates increased by 43 basis points to 63.13%.
Credit Growth and Domestic Demand
It was stated that the slowdown in Turkish lira credit growth continued with the effect of monetary tightening, and the 4-week growth rate of personal loans increased from 1.44% to 2.91%. It was noted that limited growth was recorded in commercial loans. Furthermore, it was emphasized that with the regulations made on June 28, 2024, the additional reserve requirement application based on the leverage ratio was terminated and changes were made in the maximum fees that banks could apply in case of early repayment of commercial loans.
Reserves and CDS
It was stated that the gross international reserves of the TCMB increased by 5.38 billion USD to 147.6 billion USD, and Turkey’s 5-year credit risk premium (CDS) rose to 279 basis points. The volatility of the Turkish lira also increased.
Domestic Demand and Economic Activities
It was stated that the strong economic activities in the first quarter of 2024 and the domestic demand remained resilient with the effect of wage increases and forward-demand. However, it was noted that there was a decrease in the retail sales volume index and the trade sales volume index. It was also stated that although the import of consumer goods decreased, it remained at a high level.
Inflation Developments
It was stated that consumer prices increased by 3.37% in May and annual inflation rose to 75.45%. It was emphasized that price increases in the rent, restaurant-hotel, and education items were effective in the service group. It was noted that the monthly price increase in the food group slowed down due to the impact of vegetable prices. Additionally, it was stated that the end of the free use of natural gas significantly increased energy prices.
Inflation Expectations
It was stated that according to the June Market Participants Survey results, inflation expectations decreased in all terms, but current levels pose upward risks to the inflation outlook. It was expressed that inflation expectations will be closely monitored.
