Turkey keeps rate, confirms it will keep tight stance

July 27, 2017

By CentralBankNews.info
      Turkey’s central bank kept its key short-term interest rates at their current level and confirmed its recent guidance that it will maintain will a tight monetary stance, and if necessary, tighten further if there is a risk of higher inflation.
     While the Central Bank of the Republic of Turkey (CBRT) has maintained its key one-week repurchase rate since hiking it by 50 basis points in November 2016, it has been tightening its policy stance by other means, such as raising other key rates, the rate it pays on local lenders’ U.S dollar reserves and required reserve ratios in a bid to boost the value of the lira and slow down inflation.
     In April, for example, the CBRT raised its late liquidity lending rate for the third time this year. The rate, which is used by the central bank to provide a large portion of the funds that banks need, has been raised by 225 basis points so far this year.
      The benchmark one-week repo rate is currently at 8.0 percent.
      In today’s policy statement, the CBRT reiterated its view from last month that economic activity was continuing to recover on improving domestic demand and exports were developing in a positive manner due to exports to the European Union.
     And while food prices and other improvements to cost factors should help lower inflation, the current rate of inflation still poses a risk to prices so the tight monetary policy stance will be kept.
      Turkey’s inflation rate eased to 10.9 percent in June from 11.72 percent in May.
      In its latest quarterly inflation report from April the central bank raised its 2017 inflation forecast to 8.50 percent from 8.0 percent forecast in January. 
     By the end of 2018, inflation is seen falling to 6.4 percent, up from 6.8 percent previously seen, before stabilizing around the central bank’s 5.0 percent target in the medium term.
      The central bank’s third inflation report will be published Aug. 1.
      After falling sharply in the last two months of 2016, Turkey’s lira has been firming in recent months after hitting a historic low of 3.87 to the U.S. dollar in late January, helped by the central bank’s various tightening measures.
    Today the lira was trading at 3.53 to the dollar, unchanged since the start of this year.


     The Central Bank of the Republic of Turkey issued the following statement:

“The Monetary Policy Committee (the Committee) has decided to keep the short term interest rates constant at the following levels:

a) Overnight Interest Rates: Marginal Funding Rate at 9.25 percent and borrowing rate at 7.25 percent,
b) One-week repo rate at 8 percent,
c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate at 0 percent, and lending rate at 12.25 percent.
Recently released data indicate an ongoing recovery in the economic activity. Domestic demand conditions have improved and demand from the European Union economies continues to contribute positively to exports. The economic activity is expected to maintain its strength due to the supportive measures and incentives provided recently. The Committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly.
Although recent improvements in cost factors and expected partial correction in food prices will contribute to disinflation, current elevated levels of inflation pose risks on the pricing behavior. Accordingly, the Committee decided to maintain the tight stance of monetary policy.
The Central Bank will continue to use all available instruments in pursuit of the price stability objective. Tight stance in monetary policy will be maintained until inflation outlook displays a significant improvement. Inflation expectations, pricing behavior and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered.
It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days.”
 www.CentralBankNews.info

7 years ago