Central Bank of Turkey announced its 2024 monetary and currency policy guidlienes on 29th of December. Some of the highlights from 13 page report, linked here in English, are as follows:
All available instruments will continue to be used in line with the 5% inflation objective. Financial stability will also be safeguarded as a supporting factor for price stability.
Under the inflation targeting regime, the inflation target of 5% set jointly with the Government, has been maintained. The uncertainty band, which is an element of the CBRT’s accountability, has also been maintained at 2 percentage points in both directions around the inflation target, the same as the previous years. The monetary policy will be formulated to bring inflation to this target in the medium-term.
The one-week repo auction rate will remain the CBRT’s main policy instrument.
The level of monetary tightness required for sustained price stability will be maintained as long as needed to attain the inflation path projected in the Inflation Reports and to achieve the 5% inflation target in the medium term.
Monetary tightness and monetary transmission may be supported with quantitative tightening decisions by closely monitoring liquidity developments.
The CBRT will continue to implement quantitative tightening by extending the sterilization tools at its disposal.
In addition to and in support of its other communication channels, the CBRT will continue to use its social media accounts as effective communication channels. The CBRT’s policy decisions and their rationales, practices, publications, and corporate news are also announced through these accounts. In this context, the CBRT will share various content summarizing the CBRT announcements, reports, and monetary policy instruments via the social media.
Moreover, through its social media posts, the CBRT will provide various target audiences with access to
information on a range of topics such as economic analyses and concepts, and events organized by the CBRT.
Commentary
Turkey’s central bank said on Friday it would maintain a reserve “build-up strategy” in 2024 in order continue an uptrend in its international foreign currency reserves, adding that a floating exchange rate regime would continue.
Bloomberg stated that Turkey’s central bank said its priorities next year will include a focus on rebuilding international reserves, calling bigger buffers essential for an effective monetary policy.
The central bank hasn’t explicity disclosed its strategy for accumulating reserves, saying it wants to achieve a gradual reduction in the volume of its swap transactions with lenders next year. Exporters are currently mandated to sell a portion of their foreign exchange revenues to the bank.
An alternative approach for policymakers could involve acquiring hard currency in the spot market, reversing sales that were previously employed to steer the exchange rate. Gross reserves excluding gold are now approaching $100 billion for the first time since 2016.
Economist Ugur Gurses commented:
The bank says “5 percent is my medium-term target, you should take my inflation report forecasts as your target”. Thus, we understand that the 2024 target is 36 percent. If The Bank changes its forecast with the Inflation Report to be announced at the end of January, the target will also change. If it dones’t raise the estimate, it will have to raise the interest rate one more step in February.
In my opinion, swap maturities should be shortened and the Central Bank liquidity bonds should be issued as soon as possible instead. This will help abrosb excess TL liquidty and add depth to tightening.
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