Examining the relationship between policy interest rate and key economic and fiscal variables in the context of Turkey

This study examines the impact of the policy interest rate on key economic and fiscal variables in the context of Turkey. Initially, the changes in monetary policy instruments following the 2008 global crisis and the reasons behind these changes are investigated. Subsequently, the transmission channels of the interest rate corridor implementation and the interest rate corridor strategies of selected country examples are analyzed. The monetary policy instruments applied in the new policy mix in Turkey are discussed. The transition process to the new system involving the interest rate corridor tool, which the Central Bank of the Republic of Turkey (CBRT) began to use from the end of 2010, is examined. In the final section of the study, the relationship between the policy interest rates set by the CBRT between 2013 and 2023 and key economic and fiscal variables such as inflation, growth, current account deficit, and budget deficit is analyzed. Trend analysis is used as the analytical method. While conducting the trend analysis, the annual average rates of the policy interest rate are taken into account. The average annual policy interest rates are calculated by summing the monthly announced policy interest rates for each year and dividing by 12. The information regarding the annual percentage change in the policy interest rate is calculated based on the average policy interest rate of the previous year. As a result of the study, it is understood that there is a relationship between the policy interest rate and inflation, growth, current account deficit, and budget deficit.