CBRT / Çetinkaya: We continue to use all of our tools effectively
Central Bank of the Republic of Turkey (CBRT) President Murat Cetinkaya, against the fluctuations last year strong and the deterioration in the inflation outlook of a coordinated policy response is effective partly limits, stating "all tools at our disposal in line with price stability, the Central Bank will continue to use effectively." said.
In the speech of Çetinkaya at the Ordinary General Assembly Meeting of the Central Bank of Turkey (CBRT), the following are the highlights of the speech;
Global growth slowed down in the last quarter of the year (Chart 1). Leading indicators and expectations point to lower growth rates in the medium and long term.
We believe that strengthening trade protectionist tendencies and hence increasing uncertainty are effective in this slowdown in global growth outlook.
Domestic demand slowed down due to developments in private consumption and investments, while net exports contributed to the deceleration in economic activity.
The current outlook of domestic demand was the main factor limiting import demand. On the other hand, we see that the improvement in the performance of goods and services in the balancing process also contributed strongly. Leading indicators indicate that net exports continued to support annual growth in the first quarter of 2019 as well.
"INFLATION DYNAMICS IMPROVED"
Due to all these developments, we have seen a significant improvement in the current account deficit since mid-2018.
The main determinant of the increase in inflation in 2018 was the deterioration in the exchange rate developments and accordingly the pricing behavior in the third quarter. In this period, supply-side developments in the prices of oil and unprocessed food also increased the inflation. In the last quarter of 2018, there was some improvement in inflation dynamics due to the stabilization of the exchange rate with the coordinated policies implemented and the deterioration in the expectations.
"INCREASED PREDICTURE"
During 2018, we took important steps to limit the negative effects of the rise in inflation on expectations and pricing behavior and to support price stability. By completing the monetary policy simplification process, we have significantly increased predictability. We defined the one-week repo auction interest rate as the policy rate and started to provide the entire Central Bank funding through this channel. Thus, we aimed to strengthen the monetary transmission mechanism.
In September we realized a strong monetary tightening. In the face of the excessive volatility in the financial markets, we took a series of measures focused on financial stability.
These steps and increased coordination in macroeconomic policies played an important role in limiting the volatility in the markets. The downward trend of the yield curve became evident with the decrease in the uncertainty of pricing. Due to the effects of all these developments, we have seen that inflation indicators have followed a relatively moderate trend in recent months.
In summary, the strong and coordinated policy response to the fluctuations in 2018 was effective in partially limiting the deterioration in the inflation outlook. In this period, while foreign demand remained relatively strong, economic activity followed a slow course. Within the framework of these developments, we can see that the improvement in the current account balance has become more evident. As Central Bank, we continue to use all the tools we have effectively in line with price stability.
