2.1.1. Overview

Despite some recovery in advanced economies over 2015, global economic activity continued to weaken amid slowing emerging economies. In this period, financial markets remained volatile mainly due to uncertainties surrounding global monetary policies and growth concerns. In advanced economies, financial asset prices were largely affected by these fluctuations. Risk premiums for emerging markets deteriorated throughout the year, causing portfolio inflows to decline and local currencies to depreciate. Coupled with local developments and geopolitical tensions, this overall global outlook had a serious impact on the Turkish economy. Thus, the CBRT adopted policies to contain the spillover effects of the global volatility and to improve the deterioration in the inflation outlook by actively using the one-week repo rate, the interest rate corridor, TL and foreign-currency liquidity policies and required reserves.

Amid volatilities in the global financial markets weighing on emerging economies, risk premium indicators and long-term rates in Turkey increased and the TL depreciated. Particularly due to the TL depreciation, annual core goods inflation rose sharply in 2015. The growth rate of bank loans to the private sector slowed down to more reasonable levels, while economic activity continued to grow moderately owing largely to domestic demand. Taking into account inflation expectations, the pricing behavior and developments in other factors affecting inflation, the CBRT maintained a tight monetary policy stance through 2015.

The average funding rate was increased gradually over 2015 in line with the tight liquidity policy that aimed to contain the negative effects of the cumulative TL depreciation on inflation and inflation expectations. Moreover, overnight repo rates were formed at the upper band of the interest rate corridor. The yield curve remained almost flat in 2015. Meanwhile, FX non-core liabilities were readjusted in the first half of the year to support financial stability. In addition, to reduce the banking sector’s costs, interests on TL lira required reserves were gradually increased over the year. This tight monetary policy stance and the macroprudential measures helped to contain the deterioration in medium-term inflation expectations and brought annual loan growth rates to reasonable levels.

The CBRT adopted several additional measures in 2015 in view of expectations over global economic developments. The uncertainty about the Fed rate hike had a particularly negative impact on emerging economies. In the road map announced in August, the Bank introduced a series of measures to help contain the spillovers from uncertainties surrounding global monetary policies onto the Turkish economy and to enhance the resilience of the economy against volatilities in global financial markets. In sum, the CBRT maintained a monetary policy stance that was tight against the inflation outlook, stabilizing for the FX liquidity, and supportive of financial stability in 2015.