VKF_FRAE_2018_uyg11

32 Section I: Introduction Full support to the stabilization process via monetary policy... the foreign exchange market stabilized and government measures were implemented. Inflation ended the year at 20.30%. In 2019, inflation is expected to rise slightly in the first quarter, and then decline in the second half of the year, closing the year at 15.9%. CBRT maintained its tight monetary policy stance. Throughout 2018, the Central Bank of the Republic of Turkey (CBRT) continued the tight monetary policy stance it had adopted in 2017. The CBRT adhered to a contractionary approach despite sharp fluctuations in the foreign exchange market, trade wars on a global scale, Brexit-related developments, the Fed’s monetary tightening measures, and the exacerbation of the negative impacts of geopolitical risks. Taking into consideration the upside risks to inflation, the CBRT increased the late liquidity window lending rate by 300 basis points to 16.5% at its extraordinary meeting held in May. During the same month, the CBRT completed its simplification process and set the one-week repo rate as its policy rate. Increased volatility in the foreign exchange rate and mounting inflationary risks prompted the CBRT to opt for radical monetary tightening by raising the policy rate by 625 basis points at its September meeting. The CBRT raised the one-week repo rate to 24%, the overnight lending rate to 25.5%, the borrowing rate to 22.5%, and the late liquidity window lending rate to 27%. In addition, the CBRT took steps to provide liquidity to banks, such as reducing required reserve ratios and implementing measures related to TL and foreign currency liquidity management. The CBRT emphasized that it will maintain a tight monetary stance until a long-term decline in inflation is ensured. The CBRT maintained its tight monetary policy stance in 2018, as it had in 2017. Source: CBRT CBRT Interest Rates (%) 16 21 26 11 06 07/17 08/17 09/17 10/17 11/17 12/17 01/18 02/18 03/18 04/18 05/18 06/18 07/18 08/18 09/18 10/18 11/18 12/18 1 Week Repo Auction Overnight Lending Rate GLP Lending Rate Overnight Borrowing Rate 27 25.5 24 22.5 THE WORLD AND TURKEY IN 2018