Deputy Prime Minister Mehmet Şimşek, who is in charge of the economy, has said on Sunday that a new legal regulation on monetary policies will reduce the number of monthly meetings held by the Central Bank of the Republic of Turkey's (CBRT) Monetary Policy Committee (MPC) to at least eight from the current 12, making it similar to other developed countries.
Speaking to Anadolu Agency (AA), Şimşek noted that the MPC shares key predictions, changes in monetary policies and important data such as the inflation report with the public during monthly meetings that are held at least 12 times a year. Underlining that the bank assembly is in charge of operational and administrative issues, Şimşek said it is not logical and compatible with world standards to relate the meeting dates of these two structures to each other.
Şimşek stressed that it would be useful to directly and openly regulate meeting times in accordance with MPC law in a way that serves the stability, continuity, flexibility and efficiency of monetary policies. Based on this idea, a legal regulation will be introduced to reduce the number of MPC meetings to at least eight a year.
According to the deputy prime minister, the regulation will make the number of MPC meetings compatible with those of developed countries. The monetary policy committees of nine developed countries out of a total of 14, as well as of many developing countries, gather eight times a year. Israel and South Korea also reduced the number of monetary policy committee meetings to eight just this year.
Şimşek highlighted that the reduction in the number of MPC meetings will give more time to the CRBT to produce an efficient monetary policy reaction that is based on analyses reflecting the key predictions that are free of short-term volatility. Thus, the bank will make analyses on the basis of longer-term data and information.
Referring to the fact that the CBRT has largely simplified its monetary policies, Şimşek stated the bank would have a single policy interest that does not change very often. As the CBRT wants to see the general trend, it is thought that a four-week period to hold meetings is too short. As a single policy interest will be used from now on, the CBRT's new step to reduce the number of MPC meetings can be the next step in simplification. In other words, the CBRT will reduce the number of MPC meetings in accordance with its transition to a simple and plain policy. Thus, the bank will act on more data sets.
"The CBRT will more strongly focus on its main task and have an opportunity to look at more data. It will convey clearer and simpler messages through more data," Şimşek said.
The markets closely follow the discussions of the data, which is cited in MPC meeting proceedings and focuses on short-term data. This leads to fluctuation and short-term reactive movements in the markets. Şimşek said that this situation has negative impacts on the CBRT's communication as well, adding that the reduction in MPC meetings will help lessen the markets' focus on very short-term data.
Emphasizing that it is important for banks to focus on medium-term data, Şimşek noted that monthly inflation developments in Turkey do not reflect the main trend because of the impact of structural elements such as food prices. This situation triggers early policy expectations; as such it becomes difficult to manage short-term inflation expectations – a step that supports the CBRT's efforts to focus on the medium term instead of the short term in price stability.
The new regulation will bring a new framework to strengthen CBRT communication. With clearer communication in the short and medium terms, the MPC's decisions and inflation report communications will be more holistic. According to Şimşek, the reduction in the number of MPC meetings will also contribute to building stronger public perception regarding the monetary policy's focus on medium-term price stability. However, the CBRT governor will continue to have authority to call for emergency MPC meetings outside of the bank's announced schedule in case of unexpected internal and external developments and other unforeseeable situations that require the monetary policy to urgently react. The legal amendment will take effect next month.
Underlining that the main priority of monetary policies is to ensure and maintain price stability, Şimşek stated that this was mentioned in the government's proclamation.
He said monetary policy would support the government's growth and employment policies on condition that it does not contrast with the objective of observing financial stability and ensuring price stability, adding, "Inflation targeting will continue to be the main monetary policy regime. It will be a basis for the CBRT to continue to determine monetary policy instruments by itself to ensure price stability."
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