Tight stance for supporting financial stability




CBRT published the May 2021 Financial Stability Report. In the report, the CBRT said that the tight monetary stance will be maintained to support the economy against external and temporary volatility. In the report, it was emphasized that all tools will be used decisively in order to provide the basic element of price stability; It is stated that the tight monetary stance will serve as an important buffer in controlling inflation expectations. While credit growth has been declining since the last Report period, it is seen that the tight monetary stance as well as the termination of previous credit campaigns were effective in this. Within the scope of the prudent provision policies of banks, the idea that the capital and liquidity buffers remain intact and that the risks arising from asset quality are manageable are among the prominent topics in the report.


In the current account balance, the deficit tends to decrease. While this was heavily supported by the increase in exports; The slowdown in gold imports and credits also has a slowing effect on imports. However, the main factor that poses an upside risk to imports at the moment is the exchange rates and the increasing energy and raw material bill. Due to the fact that this factor increases additional risks in terms of inflation; Continuation of exchange rate increases in a similar direction will make it difficult to keep inflation at 17%. In an environment where the PPI and CPI gap is 18 points, current exchange rate increases make it difficult to control inflation expectations in terms of a still unreflected consumer inflation effect.


The CBRT sees that real sector foreign exchange positions continue to improve and expects the decline in consumer loans to continue. Tight monetary stance has the effect of limiting credit outflows. Conversely, FX rate increases have an effect that reduces the ability of the real sector to roll over foreign currency debt. Apart from this, the real reflection of NPLs may be higher than anticipated, in view of the possibility of the BRSA to extend the temporary regulation on credit flexibility.


The easing of lockdown measures in the world regarding the coronavirus epidemic has had a significant economic recovery effect, and together with vaccination, developed countries are accelerating the recovery. In this context, the way Central banks will normalize their monetary policies and raise interest rates in the upcoming period, in the phase of withdrawing the excess liquidity they pumped during the pandemic period, poses a risk in terms of the capital positions of developing countries like ours. In this regard, developing countries need to tighten their financing buffers against the policy actions of the Fed and other central banks, which are out of control.

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