CBRT follow-up message on interest rate hikes
The Central Bank (CBRT) published the summary of the meeting of the Monetary Policy Committee (MPK), in which it raised the policy rate from 8.5 percent to 15 percent.
In the summary of the MPC meeting, which was called “The decision to increase the interest rate was the first step of the adjustment process”, it was indicated that the monetary adjustment process will continue until a significant improvement in the outlook is achieved. of inflation.
Emphasis on ‘GRADUAL SIMPLICATION POLICY’
In the statement, it was indicated that “it has been decided that the simplification policy will be gradual for a smooth transition period” and that “the micro and macroprudential framework will be simplified so as to increase the functionality of market mechanisms and strengthen macrofinancial stability “.
Underlining that the current micro and macro prudential framework is weak in supporting macro financial stability, the statement said: “A simplification policy has been adopted in this context.”
“The existing micro and macro prudential framework will be simplified in a way that will increase the functionality of market mechanisms and strengthen macro-financial stability,” the statement said:
“It has been decided that the simplification policy will be gradual for a smooth transition process. In the simplification process, the speed and order of the transformation will be determined by the impact analysis.
However, in order to ensure continued price stability, the CBRT will continue to support strategic investments that will improve the current account balance.”
‘INFLATION OUTLOOK REQUIRES NEW STEPS’
The following statements were included in the monetary policy portion of the meeting summary:
“The one-week repo auction rate, which is the policy rate, was increased from 8.5 percent to 15 percent. The Board views this decision as the first step in the monetary tightening process begun to establish disinflation as soon as possible, anchor inflation expectations and control the deterioration in price behavior.
The Committee reviewed the analysis of the effects of the monetary adjustment process on macroeconomic and financial conditions. The effects of the interest rate increase scenarios on key macroeconomic variables such as inflation, loan growth, loan and market rates, economic activity, expectations, and bank stress tests were evaluated. The inflation outlook makes it necessary to take new steps in this direction”.
‘THE EXCHANGE RATE MAY INCREASE PRESSURE ON INFLATION’
The Center’s expectations regarding inflation also drew attention in the summary of the meeting.
The statement said: “After rising slightly in 2023, inflation is expected to recede with the cumulative effects of monetary tightening and gradually converge first to historical averages and then to the medium-term target.”
In addition, noting that credit expansion, cost pressures and exchange rate developments may increase pressures on inflation, the statement said: “The current course of inflation expectations and the deterioration in the behavior of Prices keep upside risks to the inflation outlook alive.