CBRT’s medium-term inflation target stays the same

The Central Bank has said that under the inflation targeting regime, the medium-term inflation target of 5 percent set jointly with the government has been maintained.

The monetary policy will be formulated to bring inflation to the medium-term target gradually, it said in the monetary policy and liraization strategy for 2023, adding that to achieve and maintain price stability, all available instruments will continue to be used.

It noted that its main policy instrument is the one-week repo auction rate.

In 2022, the Central Bank reduced the policy rate from 13 percent in September to 9 percent in November, while kept it at this level at the Monetary Policy Committee’s (MPC) final meeting on Dec. 22.

In 2023, the MPC will hold 12 meetings on a preannounced timetable and the main communication tools of the monetary policy will be the MPC announcements and the Inflation Report.

“Policies to be implemented under the Liraization Strategy will continue to be used in a strengthened manner to permanently increase the weight of the Turkish Lira in both assets and liabilities of the banking system,” the bank said in the strategy document.

The liraization target in deposits is set at 60 percent for the first half of 2023 and conditions for banks’ use of funding, collateral and credit channels will be calibrated in line with the liraization targets, it added.

Activities that increase investments, employment, production, exports and current account surplus will be supported by targeted loan policies in a manner consistent with the inflation path envisaged for 2023, according to the bank.

The floating exchange rate regime will continue, and exchange rates will be determined under free market conditions according to supply and demand, the Central Bank said.

“The Central Bank has no commitment to any exchange rate level and will not conduct FX buying or selling transactions to determine the level or direction of the exchange rate.”

It added that it will continue to diversify its reserve sources and build up reserves.

Meanwhile, the bank announced on Dec. 31 a raft of macroprudential measures as part of the Monetary Policy and Liraization Strategy for 2023. Accordingly, some changes were made in the securities maintainance and reserve requirement practices.

In addition to banks, other financial institutions have also been included in the scope of the securities maintenance regulation, and at the first phase, factoring companies have been required to maintain securities according to the interest rate they apply to Turkish lira-denominated factoring receivables.