A 75-Basis Point Hike in Turkey’s Overnight Lending Rate

January 24, 2017

Officials at the Central Bank of the Republic of Turkey project only moderate growth consistent, under ordinary conditions, with declining inflation. But because of domestic political uncertainty and global geopolitical strains that have weighed on the currencies of many emerging markets, the lira fell quite significantly. The lagged upward effect of such on Turkish inflation concerns the monetary authorities, and a released statement today attributes the decision to raise the marginal overnight funding rate to 9.25% from 8.5% to a need “to contain the deterioration in the inflation outlook…. Inflation expectations, pricing behavior and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered.” The increase was greater than expected, but Turkey’s one-week repo rate, which has been at 8.0% since a 50-basis point increase two months ago, was not also lifted as had been muted. Nor was the 7.25% overnight borrowing rate changed. ┬áIt’s been at that level since a 25-bp cut in February 2015.

Copyright 2017, Larry Greenberg. All rights received. No secondary distribution without express permission.

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