Interest rate kept unchanged

The Central Bank's Monetary Policy Committee maintained the policy rate at the level of 8.5% at its meeting held on 27 April 2023. 

Key takes to keep unchanged the main policy rate:

- recession concerns persisted in developed economies as a result of ongoing geopolitical risks and interest rate hikes,

- the February earthquakes are expected to affect the economic activity in the near term but no permanent effect on the performance of the Turkish economy is foreseen for the medium term,

- the economic activity in the earthquake zone has been recovering faster than expected. Priority will be given to the creation of supportive financial conditions to minimize the effects of the disaster and to support the recovery,

- key risks for the current account deficit are considered the domestic consumption demand, the high level of energy prices and the weak economic activity in main trade partners,

- the level and underlying trend of inflation are improved with the support of the implemented integrated policy approach. The Bank remains cautious about possible effects of earthquake-driven supply-demand imbalances on inflation.

- current monetary policy stance is adequate to support the necessary recovery in the aftermath of the earthquake and to maintain price stability and financial stability. 

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Further widening of the budget deficit

The Government posted a budget deficit of TRY 47.2 billion (EUR 2.4 billion) in March 2023, as compared to a TRY 69.0 billion (EUR 3.3 billion) deficit in March 2022. Interest expenditures stood at TRY 45.1 billion (EUR 2.2 billion) in March 2023, non-interest expenditures increased by 45.9% compared to March 2022, reaching TRY 289.0 billion (EUR 13.8 billion). Overall, the accumulated budget deficit reached TRY 250.0 billion (EUR 12.0 billion) in the first quarter of 2023, compared to a budget surplus of TRY 30.8 billion (EUR 1.5 billion) in the same period of 2022.

Budget revenues were 83.9% higher and expenditures 48.5% higher in March 2023 as compared to March 2022. Revenues stood at TRY 286.8 billion (EUR 13.7 billion) and expenditures (including interest payments) at TRY 334.0 billion (EUR 16.0 billion) in March 2023. Tax revenues amounted to TRY 198.6 billion (EUR 9.5 billion) in March 2023, representing an increase of 55.9% as compared to March 2022. The highest increase was recorded in banking and insurance transaction tax (+117.6%) and special consumption tax (+92.8%). A decrease of 75.0% was observed in corporate income tax, whose collection in the 11 provinces affected by the earthquakes has been postponed for 6 months

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Decline in industrial production index

On 11 April 2023,the Turkish Statistical Institute (TurkStat) published new data on industrial production index which (adjusted seasonably) is decreased by 6% in February 2023 compared to January 2023. In terms of subsectors, the mining and quarrying index decreased by 11.2% and the manufacturing index decreased by 6.6%, while the electricity, gas, steam and air conditioning supply index increased by 1.4% in February 2023, compared to the previous month. Read more

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(Usually, the industrial production index is calculated on the basis of the monthly industrial production survey and VAT declarations. However, TurkStat had to resort to other alternative data sources such as e-invoice and e-archive invoice data, since the VAT declarations have been postponed after the declaration of force majeure in the region affected by the earthquake disaster)

EREN HOLDING To be fiananced for EUR 650M factory in Zonguldak.

Eren Holding’s paper subsidiary Modern Karton has obtained financing for its new manufacturing plant to become operational in Zonguldak with a EUR 650m investment.

The company will raise its annual production capacity to 1.9 million tons with financing. The facility, which will have a port and water treatment plant, was planned with a 100% environmentally friendly production approach. It is also considered as the “Green Factory” by financial institutions. The company, which currently has an annual production capacity of 1.3 million tons, will increase this figure by more than 50% with the new production plant. Modern Karton, which is the fifth largest packaging paper producer in Europe, will also rise to third place after the facility becomes operational. “Our export capacity, which currently hovers around 15%, will increase to some 40%. We’ll make production with 100% recycled paper. Thus, we’ll annually prevent cutting over 25 million trees and save 25 million cubic meters of water,” said Ahmet Eren, Chairman of Eren Holding. The factory will create 500 new jobs at the first stage.

Source: TRMonitor