Turkey Holds Key Rate at 7.5%, Cuts Lending Rate to 9.5%

Turkish central bank kept its benchmark one-week repo rate on hold at 7.5 percent on May 24th, as widely expected, saying it will maintain the tight monetary policy stance considering the underlying core inflation trend. The bank, however, lowered its top end of rate corridor for a third time in a row to 9.5 percent, signaling a willingness to ease policy, while it kept the overnight borrowing rate at 7.25 percent. Inflation eased to 6.57 percent in April, its lowest in almost three years, but it still remains well above the central bank's 5 percent target.
Central Bank of Turkey | Joana Ferreira | joana.ferreira@tradingeconomics.com 5/24/2016 12:21:31 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. While domestic demand continues to have a positive impact on growth, demand from the European Union economies continues to support exports. Accordingly 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, the global volatility has increased to some extent. The Committee assesses that the tight monetary policy stance, the cautious macroprudential policies and the effective use of the policy instruments laid out in the road map published in August 2015 increase the resilience of the economy against shocks. In this respect, the Committee decided to take a measured step towards simplification.

Recently, inflation has displayed a marked decline, mainly due to unprocessed food prices. 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 9.5%