Central Bank of the Republic of Turkey Retains 7.5% Repo Rate

September 22, 2015

“The cautious monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.”  Thus concludes the statement following the latest Turkish central bank meeting where officials left their one-week repo rate at 7.5% along with a 10.75% overnight lending rate and a 7.25% overnight borrowing rate.  Future actions are to be “conditional on the improvements in the inflation outlook.”  Despite lower global energy costs, CPI inflation rose to 7.1% last month from 6.8% in July.  “Exchange rate movements delay the improvement in the core indicators. Considering the impact of the uncertainty in domestic and global markets on inflation expectations and taking into account the volatility in energy and food prices, the Committee decided to maintain the tight liquidity stance as long as deemed necessary.”  This year, the repo rate was sliced by 50 basis points in January and 25 bps to its current level in February.  Previously, the repo rate was hiked 550 basis points to 10.0% in January 2014 but reduced in May-July of that year by a combined 175 basis points.  The January 2014 tightening had been engineered at a non-scheduled emergency meeting to counter steep lira depreciation and an inflation rate that had climbed to 7.4% versus a mid-2015 target of 5%.  As one can see, little net progress toward that goal has been achieved.  In January 2014, the overnight lending and borrowing rates were also increased by 425 bps and 450 bps to 12% and 8%, respectively.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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