Turkey’s central bank details falling loan rates and weaker demand
Turkey’s central bank published the summary of its October 22 policy meeting, setting out the economic conditions behind the earlier rate decision. Deposit and most loan rates declined in the period covered. The bank described domestic demand as weak, while food and energy developments posed risks to the inflation outlook. Gross reserves also fell from September 11.
Economics & Markets··Midday
The October decision’s economic backdrop
The Central Bank of the Republic of Türkiye published the summary of its October 22 Monetary Policy Committee meeting on October 30. It set out the inflation outlook and monetary conditions behind the policy decision already announced at that meeting.[1], [2]
The committee had lowered the one-week repo rate from 37 percent to 36 percent on October 22. In the summary, the bank reiterated that the size and timing of its steps would be determined cautiously, meeting by meeting, according to the inflation outlook. It would tighten policy if that outlook suffered a significant and persistent deterioration.[1]
Most lending rates fall before the meeting
Between the weeks ending September 11 and October 16, lira deposit rates fell 102 basis points to 42.9 percent. Lira commercial loan rates, excluding overdrafts and credit cards, declined 680 basis points to 41.9 percent. Consumer loan rates fell 264 basis points to 61.5 percent and housing loan rates fell 43 basis points to 41.5 percent. Vehicle loan rates rose 310 basis points to 43.6 percent.[1]
Over that period, the average four-week growth rate for individual loans declined to 1 percent. The equivalent average was 2.3 percent for lira commercial loans and 1.2 percent for foreign currency commercial loans after adjusting for exchange rate movements. Gross international reserves fell 9.6 billion dollars from September 11 to 169.1 billion dollars on October 16.[1]
Weak demand accompanies inflation risks
The bank judged recent indicators to be consistent with weak domestic demand. Retail sales volumes excluding gold rose 0.8 percent monthly and 0.3 percent quarterly in August. Industrial production fell 1.0 percent on a seasonally and calendar-adjusted monthly basis. The quarterly decline through August stood at 2.4 percent.[1]
Preliminary October data pointed to faster headline price growth amid food and energy price developments, while core goods inflation remained moderate, according to the bank. It identified energy prices, geopolitical developments and expectations as upward risks. Türkiye’s five-year credit risk premium was 251 basis points on October 21. Domestic government debt securities saw outflows of 0.5 billion dollars between the previous meeting week and October 16, while equity portfolio flows were broadly flat.[1]
