How Are Domestic Markets Responding to the Central Bank's Interest Rate Decision?
The Central Bank of the Republic of Turkey (CBRT) lowered the policy interest rate by 250 basis points to 47.50% in its Monetary Policy Committee (MPC) meeting. This decision aims to establish balance in consumer prices and improve inflation expectations in the country's economy.
The Central Bank stated that the increasing coordination of fiscal policy together with a firm monetary policy stance significantly contributes to the disinflation process. According to the CBRT's statements, the balancing of domestic demand, the real appreciation of the Turkish lira, and improvements in inflation expectations are lowering the main trend of monthly inflation and strengthening the disinflation process.
Regarding inflation and pricing behavior developments, the CBRT emphasized that inflation expectations and pricing behavior exhibit a tendency towards improvement, although risk factors for the disinflation process persist. Unprocessed food inflation, after its high level in previous months, showed a moderate outlook in December. Additionally, it was noted that while core goods inflation remains low, improvements in service inflation are becoming evident.
The Central Bank highlighted that indicators for the last quarter show that domestic demand continues to slow down, which supports a decrease in inflation at sustainable levels. The decision text indicated that while the main trend of inflation in November was close to flat, leading indicators point to a decline in the main trend for December.
In terms of operational framework changes and new rates, the Committee decided to adjust the operational framework, setting the borrowing and lending rates for overnight transactions at a +/- 150 basis point margin relative to the one-week repo auction rate. This decision allows for more flexible and effective use of the central bank's monetary policy tools. These developments indicate that the CBRT will maintain its determined stance in combating inflation.
Following the CBRT's unexpected interest rate cut, the BIST 100 index rose by over 1%. The index reached its daily high of 10,050 points after the decision, but then fluctuated, dropping to 9,950 points. In the stock market, sub-sectors such as trade, construction, and paper advanced by over 1%. Banks also started the day with an over half a percentage rise after a 6% increase the previous day.
The top-performing stocks in the BIST 100 include ULKER, BJKAS, and TKFEN, which saw value increases around 4%. Meanwhile, ANSGR, ARDYZ, and PAPIL were among the most declining stocks as of the last hour.
Following the CBRT decision, the dollar/TL experienced some pressure, partially falling from its intraday high of 35.29 to 35.23. The euro/TL has been fluctuating between 36.6 and 36.8 today. The euro rate started testing the day’s low levels following the initial reaction to the decision.
The price of gram gold briefly rose to 2,980 TL post-interest rate decision, before easing slightly to around 2,975 TL while maintaining a horizontal position. In the bond market, long-term bonds fell by 0.85% to 29.32, while short-term bonds dropped by 2.39% to 40.84.