Turkey Holds Repo Rate at 7.5%, Lending Rate at 8.25%


The Central Bank of Turkey held its benchmark one-week repo rate at 7.5 percent on October 20th, as widely expected, and its overnight lending rate was unexpectedly left unchanged at 8.25 percent following seven consecutive cuts. Policymakers agreed that a cautious monetary policy stance had to be maintained as a weaker lira and other cost factors restrained the improvement in inflation outlook. The bank also said that the direction and the timing of the next step in the monetary policy would be data dependent. Inflation was last recorded at 7.3 percent in September, well above central bank's 5 percent target.

Recently released data and indicators regarding the third quarter display a deceleration in the economic activity. Reduced tightness in monetary conditions and the recent macroprudential measures support the overall financial conditions. The lagged effects of the terms of trade developments and the moderate course of consumer loans limit the widening in the current account balance driven by the decline in tourism revenues. Demand from the European Union economies continues to contribute positively to exports. With the supportive measures and incentives provided recently, domestic demand is expected to recover starting from the final quarter. The Committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly.

The slowdown in aggregate demand contributes to the gradual fall in core inflation. Yet, the recent developments in exchange rates and other cost factors restrain the improvement in inflation outlook and thus necessitate the maintenance of a cautious monetary policy stance.

In light of these assessments, the Committee decided to keep the interest rates at current levels. The Committee stated that the direction and the timing of the next step in the monetary policy simplification process will be data dependent.

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 cautious monetary policy stance will be maintained.

Turkey Holds Repo Rate at 7.5%, Lending Rate at 8.25%


Central Bank of Turkey | Joana Ferreira | joana.ferreira@tradingeconomics.com
10/20/2016 11:20:03 AM