Turkey’s Unorthodox Monetary Policy Paused

February 15, 2011

No additional policy changes have been undertaken by the Central Bank of the Republic of Turkey.  Like many emerging economies, Turkey has experienced higher inflation.  Whereas other central banks have raised interest rates, Turkey lowered them.  The one-week repo rate was cut by 50 basis points in December and another 25 basis points to 6.25% on January 20 of this year.  Previously, 1025 basis points of rate cuts had been made starting in November 2008.  Lower interest rates were offset with higher reserve requirements, however, which were raised to 8% in December 2010 from 5.5% prior to November, and the corridor between the central bank’s overnight borrowing rate and lending rate was widened to 750 basis points.  Officials have insisted that the net effect of all these diverse moves would be restrictive, and that such would fortify both price stability and financial stability.  A new statement released after today’s meeting, which made no further policy changes, hints that officials may be having some second thoughts about the strategy, declaring, “the Committee also notes that rising energy and other commodity prices pose supply side risks on the inflation outlook.”  So for now, nothing further is being done, and officials will continue to watch how the economy responds and evaluate on the fly.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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