By CentralBankNews.info
Turkey’s central bank left its benchmark one-week repo rate steady at 7.50 percent but surprised financial markets by pausing in its policy of lowering the overnight funding rate, saying “recent developments in exchange rates and other cost factors restrain the improvement in the inflation outlook and thus necessitate the maintenance of a cautious monetary policy stance.”
The Central Bank of the Republic of Turkey (CBRT) has cut the overnight funding rate by 250 basis points to 8.25 percent since March, most recently last month, as part of a simplification of its monetary policy framework and efforts to stimulate demand and economic growth.
But the benchmark rate, the one-week repo rate, has been maintained since February 2015 as the central bank tries to push down inflation.
“The Committee stated that the direction and the timing of the next step in the monetary policy simplification process will be data dependent,” the central bank said, adding its usual guidance that it will maintain a cautious policy stance and the outlook for inflation will determine its decisions.
Turkey’s headline inflation rate eased to 7.28 percent in September from 8.05 percent in August as food prices declined for the first on a monthly basis since 2003. The CBRT has forecast year-end inflation of 7.5 percent.
While the exchange rate of the lira has weakened this year – on Tuesday it hit a record low of 3.11 to the U.S. dollar – it rose in response to the central bank’s decision today.
The lira was trading at 3.06 to the U.S. dollar shortly after news of the CBRT’s decision to maintain rates, up from 3.07. But it is still down 4.6 percent compared with the the start of this year.
Turkey’s economy decelerated in the third quarter, the CBRT said, noting the decline in tourism revenue and moderate consumer lending. But the central bank said it expected domestic demand to start to recover in the fourth quarter, helped by recent supportive measures and incentives.
Turkey’s Gross Domestic Product grew by an annual rate of 3.1 percent in the second quarter, down from 4.7 percent in the first quarter.
The Central Bank of the Republic of Turkey issued the following statement: