Following the change of the CBRT Governor, the minutes of the 650 basis point rate hike decision meeting was released.
The Bank notes that the rate hike from 8,5% to 15% was only the beginning step to further tightening. It also promised further simplification of rules in the financial markets imposed during the term of the former Governor Kavcioglu.
The CBRT states that inflation is projected to increase somewhat in 2023, and then decline as the cumulative effects of monetary tightening kick in, gradually converging first to historical averages. According to the bank the current course of inflation expectations and the deterioration in pricing behavior keep the upside risks to the inflation outlook alive as credit expansion, cost pressures and exchange rate developments indicate that pressures on inflation might increase.
On the impact of rate hikes, the Committee evaluated that banks were strong and resilient to potential policy rate hikes based on an undisclosed sensitivity analyses.
The Committee evaluated the necessity of increasing the functionality of market mechanisms through the simplification process of the current micro and macro-prudential framework along with monetary tightening to be based on new analyses.
The Bank alsa underlines that the current monetary policy was far from achieving the inflation target of 5%. Monetary tightening process, the steps of which will be strengthened as much as needed will be delivered on a gradual manner until a significant improvement in the inflation outlook is achieved.
The Committee has evaluated the analyses on the impact of the monetary tightening process on macroeconomic and financial conditions. The impact of rate hike scenarios on key macroeconomic variables such as inflation, credit growth, credit and market rates, economic activity and expectations as well as on stress tests on banks have been evaluated. The inflation outlook calls for taking new steps to achieve the goals.
The Committee concluded that inflation, which has drifted away from the target, calls for the effective use of the monetary policy saying the monetary tightening process will increase the effectiveness of monetary policy.
Referring to previous term, the Committee evaluated that the current micro and macro-prudential framework fell short of supporting the macro-financial stability and adversely affected the functionality of market mechanisms. The existing micro- and macro-prudential framework will be simplified to increase the functionality of market mechanisms and strengthen macro-financial stability. The speed and order of transition in the simplification process will depend on impact analysis.
It said, in order to be able to sustain price stability in the long-term, the CBRT will continue to support strategic investments that will improve the current account balance.