MÜSİAD President Abdurrahman Kaan released a written statement regarding the interest rate hike carried out by the Central Bank.

President Kaan made the following statements in his announcement:

“As will be recalled, the consumer price increase for the February 2021 period saw the peak of the last 19 months at %15.61, while the domestic producer price increase saw the peak of the last 21 months at %27.09. In this period, core inflation indicators also signalled that the rise in inflation would continue. At the same time, we had seen that the Turkish lira has recently come under pressure as well, due to the rise in global bond yields. In the light of these developments, an interest rate hike decision by the Central Bank of the Republic of Türkiye was regarded by the markets as certain, and positions were being taken accordingly. 

Of course, this increase, considerably above the forecasts concentrated around 100 basis points, was not a development the markets expected. At this point, since the price increases originating from global markets, above all in food and commodities, remain outside the area of influence of the Central Bank of the Republic of Türkiye, we are of the opinion that combating inflation solely with the policy rate instrument will not be sufficient.

On this path, which the CBRT has entered as a result both of the expectation management that constitutes the foundation of central banking and of the policy of improving Türkiye's CDS premiums, and which was undertaken as required by the conjuncture, with the front-loaded interest rate increase having taken place at a level considerably above market expectations, it will be necessary to see what course the steps to be taken from now on will follow for the business world's appetite for investment and for debt restructuring.

It is an understandable situation for emerging markets, in the face of the increasing dollar supply in the world following a USD 1.9 trillion US stimulus package, to take a positive share of this flow and to resort to policies supporting the appreciation process of their own currencies. However, two important matters are at issue here: the effect of the high interest rate on domestic market demand, and finding the appropriate USD/TRY level for foreign trade to operate favourably for the current account balance.

Another expectation is the steps the Central Bank will take on the management of dollarization and when the dollar purchase auctions will begin. While we as the business world carry these concerns, we hope that the decision taken will bring positive results, particularly in overseas markets, in terms of the CBRT's independence and its governance reputation.

In the end this is a temporary process, and we would like to assess it as a conjunctural necessity applied so that, together with reassuring data for meeting the inflation targets, the process of interest rate reduction may this time be achieved in a lasting manner.

As MÜSİAD, we hope that additional steps will be taken so that the policy rate, which has risen to the level of %19 with this increase, does not suppress the vitality of economic activity, as in the examples in recent days of the removal of the limit on the number of instalments in housing sales and the easing of the limit on automobile sales. 

The Reform Package announced by our President Mr. Recep Tayyip Erdoğan will also ease the hand of the real sector at the point of keeping the direction of the economy positive. As we expressed in the statements we made following the announcement of the reforms, it is gratifying for the business world that our greatest priority in the new period is price stability. In this context, we attach great importance to the fact that a Price Stability Committee will be established in order to assess the structural shocks that pose a risk to inflation and to determine and manage the necessary policies; and we emphasize the importance of embarking on an all-out struggle against inflation so that lasting price stability can be achieved.”