Central Bank of the Republic of Turkey Cuts Marginal Funding Rate Again

August 23, 2016

The MFR had earlier been reduced by 25 basis points in March, 50 bps each in April, May and June, and 25 bps to 8.75% in July. Today’s cut was by 25 basis points to 8.5% versus 10.75% at the start of 2016. The most recent of these easings were implemented in spite of a rise of inflation, which now stands at 8.8%, yet a released statement still call the policy stance tight, a characterization with which many analysts disagree. The statement predicts that both total and core inflation will soon head lower, citing a forecast drop in food prices as a key force. The lira did not react well initially to the failed coup a couple of months ago. A better tone is needed if inflation is to follow the path that monetary officials have assumed. All the while that the marginal funding rate has been bumped repeatedly lower, Turkey’s one-week repo rate and overnight borrowing rate have been left unchanged at 7.5% and 7.25%, respectively.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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