Tight monetary policy stance will be sustained until there is a significant improvement in the inflation outlook and if deemed necessary, liquidity policy may be tightened further in order to invert the slope of the yield curve, the Central Bank said on Thursday in the minutes of the emergency monetary policy committee (MPC) meeting earlier this week when it delivered more-than-expected rate hikes.

“The MPC decided to implement a strong monetary tightening and to simplify the operational framework. In this respect, (i) one-week repo rate is increased from 4.5% to 10%, (ii) the Central Bank liquidity will be provided primarily from one-week repo rate instead of the marginal funding rate in the forthcoming period”, the Bank said.

The Bank believes tightening monetary policy under current circumstances will not only contribute to price stability, but also support the macroeconomic stability through a reduction in the exchange rate uncertainty and risk perceptions.

The Central Bank’s aggressive rate hike proved ineffective as TRY weakened against USD on Thursday.

The Central Bank said it would not tolerate any deterioration in the price stability and in order to prevent a deterioration in the inflation expectation and the overall pricing behaviour, it decided that it would be appropriate to deliver a strong and front-loaded monetary tightening. The Bank expects current policy stance to be enough to anchor inflation expectations. January inflation may exceed the market expectations (1.06% m/m, Central Bank Expectations Survey) but tight policy stance should prevent any deterioration in medium term inflation expectations, according to the Bank. The Bank expects underlying inflation to trend downside in subsequent months.