Türkiye’s central bank on Tuesday credited its monetary tightening policies with major fiscal benefits, saying the measures lowered government borrowing costs and made a contribution to public finances through Treasury reissuance auctions.
The findings, published in a blog on the Central Bank of the Republic of Türkiye’s (CBRT) website, said borrowing costs at auctions of the Treasury reissuances dropped by 40 basis points on average, citing the latest tightening cycle. "We estimate this decline in the borrowing costs to have contributed approximately TL 6.8 billion ($190 million) to the public finance," the bank said.
The central bank has been pursuing aggressive monetary tightening since June 2023, attempting to rein in inflation, which ended 2024 at nearly 44.4%, and stabilize the Turkish lira.
The bank launched its easing cycle last month, cutting its benchmark policy rate by 250 basis points to 47.5%, as annual inflation heads down. Between mid-2023 and last year, strong growth in price gains and currency market pressures had seen it ramp rates up to 50% from 8.5%.
With inflation slowing, the bank is seen continuing with rate cuts, economists say.
In its blog, the bank said tight monetary policy increases yields in bond markets through the monetary transmission channel, while supporting the demand elasticity in reissuance auctions through the channel of predictability and expectations.
"The increased elasticity driven by predictability and credibility points to an increase in the risk-bearing capacity of banks. Thus, it is considered that the CBRT’s policy stance bolsters the financial system and contributes to public finance through the Treasury auctions," it said.
During periods of stringent monetary policy, short-term interest rates rise along with the policy rate, while expectations of lower inflation can drive down long-term rates, it added.
The analysis also highlighted that “disinflation efforts strengthen banks’ risk appetite and risk-bearing capacity toward borrowing instruments by fostering predictability.”
