Central Bank of Turkey's Monetary Policy Statement: Continuation of Simplification Steps Planned
The Central Bank of the Republic of Turkey (CBRT) Monetary Policy Committee plans to continue simplification steps and to phase out the KKM application within the year. The CBRT has published the "Monetary Policy Document for 2025."
It states that with the visible progression of the disinflation process in 2025, demand for Turkish lira assets will persist. The continuation of simplification steps in regulations regarding this area, in light of the increase in the share of TL deposits and the decrease in KKM accounts, is planned along with the termination of the KKM application within the year.
The first section of the report titled "Macroprudential Policy Framework" includes the following information: "To enhance the functionality of the market mechanism, strengthen macro-financial stability, and support the monetary transmission mechanism, simplification steps have been continued in 2024, starting with the repeal of regulations regarding the security establishment in the macroprudential policy framework.
These simplification steps will continue in 2025, evaluating the implications of all components of the current macroprudential framework on inflation, interest rates, exchange rates, reserves, expectations, and financial conditions.
The repeal of the security establishment regulation has strengthened the relationship between the yield curve of bonds and the monetary policy stance. The increase in the share of Turkish lira deposits within total deposits and the transition from KKM accounts to Turkish lira accounts has supported the monetary policy stance in 2024. As a result of these applications that enhance the effectiveness of the monetary transmission mechanism, the KKM balance decreased to 34.2 billion USD as of December 20, 2024. The share of Turkish lira deposits in total deposits rose to 58.6% as of December 20, 2024, while the share of KKM in total deposits fell to 6.2%.
As the disinflation process becomes more distinct in 2025, the demand for Turkish lira assets will continue. There are plans to continue simplification steps in regulations concerning this area and to terminate the KKM application within the year, alongside the increase in the share of TL deposits and the decrease in KKM accounts.
Policies aimed at credit growth have been effectively utilized in 2024 to support the monetary policy transmission mechanism and to ensure balance in domestic demand. A mandatory reserve requirement based on credit growth has been introduced to enhance the effectiveness of the credit growth limit. In this context, the monthly growth limit for Turkish lira commercial loans has been reduced from 2.5% to 2%, and for personal loans from 3% to 2%.
Additionally, a monthly growth limit of 2% has been imposed on foreign currency loans to maintain alignment with the disinflation path and the compatible trajectory of credit growth, which has since been lowered to 1.5%.
To limit borrowing behavior and contribute to balance in domestic demand, maximum interest rates applicable to credit card transactions have been differentiated based on the outstanding balance for individual credit cards. Moreover, maximum interest rates applied to cash withdrawal transactions from credit cards and drawing accounts have been delineated and set at a higher level.
The growth and composition of credit will be ensured to form in a framework supportive of the disinflation process and macroeconomic balances. The credit growth limits and exceptions granted under the regulation will be reviewed throughout the year."