No Further Turkish Monetary Policy Changes for Now

August 23, 2011

At an interim unscheduled meeting on August 4, policy makers at the Central Bank of the Republic of Turkey sliced their benchmark one-week repo rate by 50 basis points to 5.75% and narrowed the corridor between their overnight lending and borrowing rates by raising the latter 350 bps to 5.0% but not changing the former’s 9.0% level.  Those moves were undertaken to contain downside domestic and external economic risks.  While no further changes were announced after today’s scheduled meeting, a released statement leaves the door open for possible additional easing.

All policy instruments may be eased should global economic problems further intensify and the slowdown in domestic economic activity becomes more pronounced.

Prior to the August 4 changes, the key interest rate had not been changed at six straight monthly meetings following cuts of 50 basis points in December 2010 and 25 bps in January of this year.  These reductions were done to mitigate the tightening effect of sharply higher reserve requirements and a widening of the overnight lending/borrowing rate spread.  On balance, those changes left policy tighter and helped promote a sounder current account by stopping upward pressure on the Turkish lira.

Today’s statement expresses satisfaction with the effects of the various policy changes since last autumn.  An improved current account is predicted, and although CPI inflation has lately been a touch higher than forecast in July, officials are confident that “the inflation outlook for the end of 2012 is consistent with the 5% target” because of the deceleration in global growth and slower expansion in domestic demand and credit.

The next scheduled policy meetings will be held on September 20 and October 20.

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



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