Turkey Holds Key Rate, Cuts Lending Rate for 5th Time


Turkish central bank kept its benchmark one-week repo rate on hold at 7.5 percent on July 19th, as widely expected. Policymakers said the current monetary policy stance, the cautious macroprudential policies and the effective use of the policy instruments increased the resilience of the economy against shocks, after a failed attempt at a military coup in the country led to sharp fluctuations in financial markets. Meanwhile, the bank lowered its overnight lending rate for a fifth time in a row to 8.75 percent, signaling further willingness to ease policy, and kept the overnight borrowing rate at 7.25 percent.

Inflation went up in June and remains above the central bank's 5 percent target.

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, domestic developments have led to fluctuations in financial markets. The Committee assesses that the recent liquidity measures have alleviated the volatility in financial markets. Moreover, 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 have increased the resilience of the economy against shocks. Also considering its contribution to the effectiveness of monetary policy, the Committee decided to take a measured and cautious step towards simplification.

The Committee has indicated that inflation may display a marked increase in the short term due to developments in unprocessed food and tobacco prices. Meanwhile, the core inflation trend is expected to improve gradually. Yet, the developments in inflation outlook necessitate 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. Moreover, market developments will be closely monitored and the necessary liquidity measures will continue to be taken to support financial stability.



Turkey Holds Key Rate, Cuts Lending Rate for 5th Time


Central Bank of Turkey | Joana Ferreira | joana.ferreira@tradingeconomics.com
7/19/2016 12:18:39 PM