New record in dollar and euro after interest rate hike

In the first monetary policy meeting held under the administration of the new president of the Central Bank, Gaye Erkan, the policy rate was increased by 650 basis points to 15 percent.

After the interest rate decision, strong movements can be seen in the foreign exchange market. The dollar gained close to 3 percent against the Turkish lira, breaking above the 24.31 level and seeing a new record high. The euro, for its part, exceeded the level of 26.71.

Turkey’s credit risk premium, which was 492 basis points before the decision, increased to 518 basis points after the decision.

Before and after the decision, there was a strong fluctuation in the BIST 100 index on Borsa Istanbul. After the decision, the index rose more than 2 percent and then gave back some of its gains.

WHAT DID PK SAY?

The highlights of the Monetary Policy Committee (PPK) statement after the meeting are as follows:

*The Board decided to start the monetary adjustment process in order to establish disinflation as soon as possible, anchor inflation expectations and control the deterioration of price behavior.

* While inflation in the global economy is falling, it is still well above long-term averages.

*In our country, recent indicators point to an increase in the underlying trend of inflation. The strong evolution of domestic demand, the pressures on the side of costs and the rigidity of inflation in services were the determinants of this evolution.

* In addition to these factors, the Board anticipates that the deterioration in the behavior of prices will have an additional negative impact on inflation.

*The Board will determine the policy rate in order to generate the monetary and financial conditions that allow the underlying inflation trend to decrease and reach the goal of 5% in the medium term.

*Monetary tightening will be gradually tightened where necessary until a significant improvement in the inflation outlook is achieved.

*Inflation indicators and the inflation trend will be closely monitored and the CBRT will continue to use all the tools at its disposal resolutely in line with the main objective of price stability.

* With the start of the monetary tightening process, the effectiveness of monetary policy will increase.

However, in order to ensure continued price stability, the CBRT will continue to support strategic investments that will improve the current account balance.

*The Board will simplify the existing microprudential and macroprudential framework to increase the functionality of market mechanisms and strengthen macrofinancial stability.

*The simplification process will be gradual, carrying out an impact analysis