CBRT Will Continue To Be The Monetary Dove​

According to Odeabank's Macroeconomic Assessment Report for April, CBRT will respond to the possible contraction in the global financial markets not by raising the policy interest rates, but by continuing its wait-and-see approach as a monetary dove..

In the April Macroeconomic Assessment Report of Odeabank, continuing its operations since 2012 as a 100 percent subsidiary of Lebanon based Bank Audi, it is predicted that Central Bank of the Republic of Turkey (CBRT) will not respond to the possible contraction in the global financial markets by increasing the policy rate which is the lower band of the interest corridor but rather by keeping its stance as a monetary dove.

In the report where it is noted that the developments in the global markets provide a positive environment that allows CBRT to narrow the interest rate corridor only in the upper band, Odeabank Economic Research and Strategic Planning Director Ali Kırali states: “When we assess the trends in the global monetary policies, short term inflation outlook and the messages of CBRT, we conclude that the steps towards simplification in monetary policy will continue to be realized gradually. It is understood that the ultimate goal of the simplification process is to make the upper band of the interest rate corridor the policy interest rate.” He adds: “However, in order to reach this goal, we anticipate that CBRT will only lower the upper band of the corridor as long as the global financial conditions allow it, not increasing the lower band of the corridor or the policy interest rate if the global financial conditions worsen but cease the simplification process instead. In other words, we foresee that depending on the developments in the global monetary policies and financial conditions, CBRT will continue to lower the upper band of the interest corridor gradually, when the opportunity arises. As for the periods where there is contraction in the global financial markets, we expect CBRT to continue its monetary dove position and wait-and-see approach, not increasing the policy interest rates or the lower band of the corridor.”

In their meeting on March 24, CBRT Monetary Policy Committee had cut the upper-band of the interest rate corridor, or the overnight lending rate, from 10.75% to 10.50% percent, while it kept the lower band of the corridor at 7.25% percent. CBRT made a statement declaring that they have observed a decrease in global volatility, adding: “With the effective use of the policy tools mentioned in the road map announced in August, the need for a wide interest rate corridor has been somewhat reduced. In line with this, CBRT Monetary Policy Committee has decided on a measured step towards simplification.”​​