Turkey Holds Key Rate at 7.5%, Cuts Lending Rate to 10%

Turkish central bank left its benchmark one-week repo rate unchanged at 7.5 percent on April 20th, as widely expected, saying it will maintain the tight monetary policy stance considering the current inflation expectations and pricing behavior. The bank, however, lowered its overnight lending rate for a second time in a row to 10 percent, signaling a willingness to ease policy despite high inflation, while it kept the overnight borrowing rate at 7.25 percent.
Central Bank of Turkey | Joana Ferreira | joana.ferreira@tradingeconomics.com 4/20/2016 12:26:13 PM
Statement by the Central Bank of the Republic of Turkey:

Annual loan growth continues at reasonable rates in response to the tight monetary policy stance and macroprudential measures. The favorable developments in the terms of trade and the moderate course of consumer loans contribute to the improvement in the current account balance. Demand from the European Union economies continues to support exports at an increasing pace, despite elevated geopolitical risks in other export markets. Recent data and the leading indicators show that economic activity displays a moderate and stable course of growth. The Committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly.

Recently, decline in the global volatility has continued and global financial conditions have improved. Along with these developments, the effective use of the policy instruments laid out in the road map published in August 2015 has reduced the need for a wide interest rate corridor. In this respect, the Committee decided to take a measured step towards simplification.

Recently, inflation displayed a marked decline, which was mainly due to unprocessed food prices. This decline is expected to continue in the short run. However, improvement in the underlying core inflation trend remains limited, necessitating the maintenance of a tight liquidity stance.

Future monetary policy decisions will be conditional on the inflation outlook. Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the tight monetary policy stance will be maintained.

Turkey Holds Key Rate at 7.5%, Cuts Lending Rate to 10%