May 19, 2022

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Turkish Finance Minister briefs bank associations on new economic model

Finance Minister Nureddin Nebati briefed Turkey’s banking association, Banking Regulation and Supervision Agency (BDDK), and state bank managers on the government’s new low-rates economic model, the association said on Saturday, after the lira currency sank to record lows.

“Our banks will continue to use their resources to meet the financial needs of households and the real sector, within the free-market mechanism that operates with its rules,” the banking association said in a statement. It said the goal of the meeting was to discuss “healthy, consistent growth.”

On Thursday, Turkey’s central bank cut its benchmark policy rate for the fourth consecutive time, in line with market expectations.

The key policy rate – the one-week repo rate – was lowered by 100 basis points to 14% at the Central Bank of the Republic of Turkey’s (CBRT) last Monetary Policy Committee (MPC) meeting of the year.

The bank also signaled it would pause the easing cycle to monitor its effects in the next three months. The cut comes amid an increase in consumer prices, with staples such as food and gas prices recently jumping.

Turkey has been pursuing a new economic model based on lower interest rates, which President Recep Tayyip Erdoğan said will boost production, jobs, exports and growth.

Erdoğan has repeatedly defended the low-rate policy over the last three weeks as necessary to boost growth, exports and credit. The government, regulators and the banks association have all rallied around the new economic policy.

The president has called for “patience” and argued that his approach would ultimately make Turkey less dependent on outside factors such as the scale of foreign investment and the price of commodity goods.

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