By CentralBankNews.info
Turkey’s central bank left its benchmark one-week repo rate steady at 7.50 percent but said it would start to simplify its monetary policy at the next meeting of its monetary policy committee as long as the recent decline in volatility in financial markets continues.
But the Central Bank of the Republic of Turkey (CBRT), which has cut its rate by 75 basis points this year, also repeated its recent guidance that it would maintain its tight monetary policy stance in light of inflation expectations, the behavior of prices and other factors that affect inflation.
The central bank has been under pressure from President Tayyip Erdogan to lower rates to stimulate growth but the central bank, including its governor Erdem Basci, has resisted the pressure and some economists have called for higher rates in light of continued high inflation and depreciation of the lira currency, especially following last week’s policy tightening by the U.S. Federal Reserve.
In response to the CBRT’s decision, the lira fell to around 2.94 to the U.S. dollar from 2.92 prior to the decision to be down almost 21 percent this year.
Inflation in Turkey has been fueled by the depreciation of the lira since the “taper tantrum” in the summer of 2013 and in November the inflation rate rose to 8.1 percent from 7.58 percent the previous month, sparking fresh speculation that the central bank would raise rates today.
But the central bank repeated that while energy prices are having an favorable impact on inflation, the “cumulative exchange rate movements delay the improvement in the core indicators,” and future monetary policy decision will be conditional on the inflation outlook.
Earlier this month the central bank forecast that inflation would ease to 6.5 percent at the end of 2016 and the target for the next three years would remain at 5.0 percent, plus an uncertainty band of 2 percentage points above and below.
The central bank uses a relatively wide interest rate corridor system to implement its policy but released in in August last year a so-called road map for how it would implement policy during the “normalization of global monetary policies,” a reference to the Federal Reserve’s tightening.
As part of the roadmap, the central bank will narrow its interest rate corridor and make it more symmetric around the one-week repo rate.
In addition to keeping the one-week repo rate steady at 7.25 percent, the central bank maintained the marginal funding rate at 10.75 percent and the borrowing rate at 7.25 percent.
The Central Bank of the Republic of Turkey released the following statement: