BY ALAATTIN AKTAS
The policy rate of the Central Bank was cut by half a point yesterday. It is also possible to read this half-point as a great slowdown in the rate of interest reduction. While the lowest movements were even one point, we witnessed this time that it was halved.
Considering it as a movement within itself, this half-point is not a bad rate at all. The movement from 9 to 8.5 is greater than, for example, from 19 to 18. During the periods when the policy rate was kept constant, I did not feel the need to read the text of the Monetary Policy Committee, but this time I did. Because I wondered what justifications were put forward for this half-point reduction. The statement talks about holistic policies that I don’t know much about. There was an improvement in the level and trend of inflation with the support of these policies (not the base effect!). The effects of supply-demand imbalances caused by the earthquake on inflation have started to be closely monitored, the statement said. At this stage, it became even more important that financial conditions be supportive in terms of sustaining the acceleration in industrial production and the increasing trend in employment. That’s why the Central Bank decided to cut the policy rate by half a point. The monetary policy stance created by this moderate reduction was sufficient to support the necessary recovery after the earthquake by maintaining price and financial stability, read the statement.
It is also worth adding this: Although the Central Bank expects the earthquake to affect economic activity in the near term, it predicts that it will not have a permanent effect on the performance of the Turkish economy in the medium term.
We hope so, we hope the Central Bank is right.
The Central Bank’s policy rate cut to 8.5% will also affect the interest rate of the FX-protected TRY deposit accounts (KKM).
The interest rate ceiling for KKM will now be 11.5%.
Banks can apply any interest rate, with the policy rate as the base, to accounts with KKM conversion. It is known that this interest rate may reach 25% in total.
It is also known that some banks create various instruments and apply the policy rate as interest, that is, 8.5% for the future, and on top of that provide some advantages based on foreign currency. Meanwhile, the decrease in FX deposit accounts continues. Foreign exchange (FX) deposit accounts of domestic residents decreased by another USD 2bn in the week of February 10-17, according to the data from the Central Bank. Of this amount, USD 1.2bn arose from the decrease in the accounts of legal persons, and USD 775m in the accounts of real persons.
The idea that there will not be a significant increase in FX rates at least until the elections, or maybe there will be no increase at all, leads the citizens to KKM. Therefore, it should be expected that the trend toward KKM from FX accounts will continue to gain momentum.