"Signal of additional measures from the Central Bank"

27.03.2025 15:01

The Central Bank published a summary of the extraordinary Monetary Policy Committee meeting held last week following the volatility in the money markets. The summary stated that Turkey's risk premiums (CDS) increased by 38 basis points from the level at the Monetary Policy Committee meeting on March 6, reaching 296 basis points as of March 20.

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Last week, when the dollar exchange rate reached a record of 40 and the euro reached 44 lira, the Central Bank's Monetary Policy Committee (Committee) decided to hold an extraordinary meeting. During the meeting, developments in the markets and the measures to be taken were discussed.

The summary minutes of the critical meeting have been published. In a statement from the Central Bank, the following expressions were included:

Recent Developments

1. Recently, with the high volatility in financial markets, Turkey's 5-year credit risk premium (CDS) has increased by 38 basis points from the level at the Monetary Policy Committee (Committee) meeting on March 6, reaching 296 basis points as of March 20. During the same period, the 1-month exchange rate volatility of the Turkish lira increased by 10.3 points to 19%, while the 12-month exchange rate volatility rose by 4.0 points to 21.5%.

MEASURES AND MONETARY POLICY TOWARDS MARKETS

2. The Committee has convened to evaluate developments in financial markets. Measures have been taken to support a tight monetary stance by assessing the risks that these developments may pose to the inflation outlook.

3. In this direction, the Committee has decided to raise the Central Bank's overnight lending interest rate from 44% to 46%. The policy interest rate, which is the one-week repo auction interest rate, has been kept at 42.5%, while the Central Bank's overnight borrowing interest rate has been maintained at 41%.

4. Additionally, measures have been taken regarding TL and foreign currency liquidity to limit market volatility. To ensure the healthy functioning of the foreign exchange market, prevent volatility that may be observed in exchange rates, and balance foreign currency liquidity, Turkish lira-settled forward foreign exchange sale transactions have been initiated. Furthermore, to strengthen the monetary transmission mechanism and support a tight monetary stance, a temporary pause has been placed on one-week repo auctions, and it has been decided to issue liquidity bills with maturities of up to 91 days.

ADDITIONAL MEASURES MAY BE TAKEN

5. If deemed necessary to maintain the effective functioning of financial markets, additional measures will be taken.

6. The proactive measures taken to reduce volatility in financial asset prices aim to limit the upward risks to the inflation outlook.

7. In line with its primary objective of price stability, the Central Bank will continue to use all its tools decisively and effectively within market rules.

8. A tight monetary policy stance will be maintained until a permanent decrease in inflation and price stability is achieved. The Committee will determine the steps to be taken regarding the policy interest rate with a focus on the inflation outlook, cautiously and on a meeting-by-meeting basis. If a significant and permanent deterioration in inflation is anticipated, the monetary policy stance will be tightened.

9. The Committee will make its decisions within a predictable, data-driven, and transparent framework.