Şahap Kavcıoğlu, Governor of the Central Bank of the Republic of Turkey (CBRT), said: “As a central bank, in line with our main objective of achieving and maintaining price stability, we will continue to use all available tools resolutely within the framework of the liraisation strategy until strong indicators point to a permanent point to a fall in inflation and we will reach the 5% medium-term target,” he said.
CBRT President Şahap Kavcıoğlu made a presentation to the members of the Plan and Budget Committee of the Turkish Grand National Assembly (TBMM). Kavcıoğlu stated that despite the global supply shortages and the war in the region where Turkey is located, Turkey’s economy continues to grow at a sustainable level and uninterruptedly, saying: “Our country’s successful growth performance reflecting its robust and enduring appearance has recovered quickly even under the extremely adverse conditions of the pandemic period, as has been proven by comparisons with different groups of countries. Turkey’s economy has ranked first among G20 countries and second among OECD countries with its growth performance since the last quarter of 2019.
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“OUR COUNTRY, WHICH IS 18TH IN THE WORLD BY PURCHASING POWER PARITIES, WILL BE 11TH FROM 2022”
Kavcıoğlu noted that Turkey’s share of the world economy has doubled over the years, reaching 2 percent on a purchasing power parity basis of national income: “This increase is due to our country, which is the 18 world a year 2000, will be 11 percent in 2022. It made it to the rank of th,” he said.
Recalling that Turkey’s economic model has been implemented, Kavcıoğlu said that Turkey’s share in the world economy continues to grow with this model. Regarding the labor force and the unemployment rate, Kavcıoğlu reminded that the seasonally adjusted labor force reached 34.3 million people in September, while the unemployment rate was 10.1.
“Turkey was one of the countries where total employment grew the most among OECD countries”
Recalling that the service sector employs 17.5 million people and the industrial sector employs 6.6 million people when analyzed by sector, Kavcıoğlu said: “Turkey was one of the countries with the strongest overall employment among OECD countries increased.”
Kavcıoğlu reminded that Turkey’s energy import share of national income increased from 3.8 percent to 10.9 percent with the extraordinary increase in global energy and commodity prices, Kavcıoğlu said:
“Although overshadowed by energy prices, the positive impact on the current account of Turkey’s economic model, which aims to boost investment, employment and exports and generate a current account surplus, is becoming more tangible. Adjusted for price and economic effects, our current account showed a surplus for four quarters in a row. With the normalization of energy and commodity prices, our country will achieve its sustainable current account surplus target.
“PRODUCT AND MARKET DIVERSITY OF OUR EXPORTS DOUBLED COMPARED TO 2006”
Kavcıoğlu explained that the export dynamics in Turkey’s economy supports the recent structural current account balance change, Kavcıoğlu said: “The analyzes we conducted show that the product and market diversity of our exports has increased rapidly, and since 2022 has increased the variety of countries and products has doubled compared to 2006. Furthermore, our export growth before 2015 was mainly driven by growth in existing markets, but after 2015 it was realized by new market entries. Around 28 percent of the export growth in the period 2015-2022 was achieved by new market entries.
Noting that monthly inflation is gradually approaching its historical averages, Kavcıoğlu said, “With this development, we expect inflation to continue falling and follow a trajectory in line with our estimated path in the October Inflation Report. As part of our medium-term inflation forecasts, we assume that the inflation rate will fall to 22.3 percent in 2023 and drop into the single digits to 8.8 percent in 2024.
“WE WILL CONTINUE USING OUR INSTRUMENTS UNTIL INFLATION REACHES THE MID-TERM TARGET OF 5 PERCENT.”
Kavcıoğlu said: “As a central bank, in line with our main goal of achieving and maintaining price stability, we will resolutely continue to use all tools at our disposal within the framework of the liraization strategy until strong indicators point to a permanent decline in inflation and we will enter the medium-term.” Achieve 5 percent target.”
Kavcıoğlu said that by reviewing all policy instruments in 2022, they have gradually created the most appropriate monetary policy framework for Turkey’s needs and conditions, adding: “In this direction we have our various products and macroprudential measures related to.” managing liquidity, collateral, required reserves and currency reserves along with our policy rate. We have used it most effectively with a holistic understanding.
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“WE ESTIFY THAT A POLITICAL RESPONSE TO RISING INTERESTS ONLY WILL NOT AFFECT COST PRESSURE”
Assessing that the inflation experienced was mainly caused by negative supply shocks, Kavcıoğlu said: “Under the circumstances, we as a central bank believe that it will not be effective to respond to supply-side cost pressures, which are outside the sphere of Influence of monetary policy, with policy focused solely on raising interest rates. Instead, we believe it is necessary to implement policies that support production and investment and increase our current excess capacity in order to reduce inflation and establish price stability over the long term. Furthermore, by designing our monetary policy practices with a focus on liraization, we also contend with structural elements that disrupt price stability and make the economy vulnerable to external shocks.
“WE BELIEVE THAT OUR DECISIONS WILL CONTRIBUTE SIGNIFICANTLY TO THE CONTINUITY OF EXPORTS AND PROTECTING OUR SUPPLY CAPACITY”
Kavcıoğlu recalled that they cut the policy rate by a total of 500 basis points to 9 percent in the August-November period, saying: “By increasing the resilience of our economy in 2023; We assume that the supply will make a significant contribution to the continuity of investments and exports and to maintaining our ability to deliver.”
Noting that a key indicator of the effectiveness of the macroprudential measures implemented as part of the liraization strategy is that corporate loans are gaining increasing weight in the loan composition, Kavcıoğlu said: “In 2022, corporate loans grew at a faster pace than in previous periods than retail lending and the ratio of consumer lending to commercial lending fell. In addition, the share of investment and export credits in commercial credits has increased quite sharply.
“IN THE JANUARY-NOVEMBER PERIOD 700 BILLION TL LOANS WERE USED TO SMES”
Kavcıoğlu noted that the use of lira commercial loans showed strong development in 2022 and continued:
“In the period January-November 2022, the net utilization amount of TL commercial loans is about 6 times the realization of 2021. In addition, the fact that the said loans were mostly drawn by SMEs is another important development regarding the effectiveness of our targeted lending policy . In the January-November period, a net amount of TL 700 billion was used by SMEs. That amount is nearly seven times the 97 billion lira loan drawn by SMEs over the same period in 2021. As a result, during this period, the size of SME loans and their share of banking sector loans reached the highest levels in history.”
“WE SEE TURKISH LIRA DEPOSIT RATE FROM 35.6 PERCENT IN JANUARY TO THE 50 PERCENT LEVEL WITH RECENT DATA”
Kavcıoğlu indicated that they prioritized increasing the share of Turkish lira in the composition of assets and liabilities of the banking sector within the process strategy, saying: “In this context, the liraization process on deposits is the most important component in the financing structure of the sector, was initiated with the application of currency protected deposit (KKM). As a result, we see that the deposit rate for the Turkish lira has increased significantly, approaching the 50 percent level with the latest data from 35.6 percent in January.
“OUR INTERNATIONAL RESERVES HAVE REACHED $123 BILLION AND CONTINUE GROWING TREND”
Kavcıoğlu continued his speech as follows:
“We have strengthened our reserve flows by creating new channels such as the KKM account, the YUVAM account, country currency swap agreements, which are increasingly being used to trade local currencies, and selling part of the export earnings to the central bank. In an environment of losing more than $1 trillion in reserves on a global scale, these effective practices maintain our strong stance on our reserves. In this context, our international reserves reached $123 billion with an increase of $11.5 billion in 2022 and continue their upward trend.
The Commission session continued with MEPs presenting their views on the budget.
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’WE HAVE INCREASED THE RESERVE TO NEAR 150 TONNES’
Kavcıoğlu also answered questions from deputies in the commission. Kavcıoğlu stated that the foreign currency’s stable rate helped slow down inflation and also stated that the gold reserves reached 765 tons, saying, “We increased the reserves by almost 150 tons this year.” Kavcıoğlu said, that market and policy rates have reached a very reasonable point.
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