Turkish Monetary Policy Again Left Unchanged

September 16, 2010

As expected, the one-week repo rate at the Central Bank of the Republic of Turkey was kept at 7.0%, and a statement from officials once more kept to the mantra that they expect “to keep rates at present levels for some time longer and at low levels for a long time.”  It wasn’t that way before the world recession.  Turkey’s first rate in November 2008 was by a timid 25 basis points, but officials went on to cut rates in each of the following twelve months and by 1025 basis points altogether.

Turkish monetary policy has its contradictions.  The economy is expanding dramatically, matching China’s 10.3% rise of real GDP between 2Q09 and 2Q10.  True, there are signs of slowing in 3Q, and the global environment carries risks.  But with a higher CPI inflation rate of 8.3% in August, the real interest rate is now notably negative.  Policy is promoting growth in part because the jobless rate exceeds 10%.  Analysts have been guided to not expect a rate increase for “some time longer” and to expect rates at first to climb very gradually.  Present rates have been in place for ten months already.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.



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