Turkish Monetary Policy Left Unchanged with a Bias Toward Ease

September 20, 2011

The Central Bank of the Republic of Turkey retained a 5.75% one-week repo rate and kept overnight lending and borrowing rates at 9% and 5%, respectively

During the Great Recession, Turkey’s key rate was cut from 18.75% to 7.0% over the year between November 2008 and November 2009.

Monetary policy subsequently had tightened in late 2010 and early this year via increased reserve requirements, a widened lending-borrowing rate corridor, and lira strength, which collectively outweighed the impact of two reductions of the one-week repo rate, first by 50 basis points to 6.5% in mid-December and then by 25 bps on January 20.  After an unscheduled policy meeting, the repo rate was slashed by another 50 bps to its current level of 5.75% on August 4, and the band between the overnight rates was narrowed considerably by a 350-bp hike of the borrowing rate to 5% from 1.5%. 

At today’s meeting, as at the previous one on on August 23, central bank policymakers decided not to implement any further changes, and a statement on the bank’s web site repeated the major points from the prior statement:

  • Growth will slow in the second half of 2011 because of weaker domestic demand and continuing sluggish exports.
  • Domestic credit expansion has ebbed, too.
  • Above-target core inflation may become even more so, but the elevation reflects temporary factors and will not endure amid slower growth.
  • Core inflation is projected near the target 5% by the end of 2012.

As officials have done before, they warned that more rate cuts may be needed. “All policy instruments may be eased should global economic problems further intensify and the slowdown in domestic economic activity becomes more pronounced.”

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



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