Turkey Unexpectedly Holds Rates

The Central Bank of Turkey unexpectedly held its benchmark interest rate at 17.75 percent on July 24th following a 125bps hike last month to support the lira, which already lost around 20 percent of its value so far this year. The projections were pointing to an increase of 100-125bps after inflation jumped in June to its highest level in 14 years.
Central Bank of Turkey | Joana Ferreira | joana.ferreira@tradingeconomics.com 7/24/2018 12:33:10 PM
The overnight lending rate was also kept at 19.25 percent and the overnight borrowing rate at 16.25 percent.

Statement by the Central Bank of the Republic of Turkey:

Recently released data indicate a more significant rebalancing trend in the economic activity. External demand maintains its strength, while signs of decelaration in domestic demand become more visible.

Cost factors and volatility in food prices have been the main drivers of the recent upsurge in inflation. On the other hand, price increases have shown a generalized pattern across subsectors. Despite the milder impact of demand conditions on inflation, elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior. Accordingly, the Committee assessed that it might be necessary to maintain a tight monetary stance for an extended period.

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 decisively until inflation outlook displays a significant improvement. Inflation expectations, pricing behavior, lagged impact of recent monetary policy decisions, contribution of fiscal policy to rebalancing process, and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered.

Turkey Unexpectedly Holds Rates