Unchanged Monetary Policy in Turkey at This Month’s Meeting

November 23, 2011

Officials at the Central Bank of the Republic of Turkey retained a 5.75% one-week repo rate.  That key benchmark of monetary policy was reduced by 1,175 basis points in the year between November 2008 and November 2009.  Subsequent cuts were implemented of 50 basis points in December 2010, 25 bps in January 2011, and 50 bps to the current 5.75% in August 2011.  Credit policy is fine tuned further by the manipulation of the spread between the central bank’s ovenight lending and borrowing rates.  The spread was 250 bps in September 2010 when the lending rate was 8.75% and the borrowing rate was 6.25%.  It widened three months later to 750 basis points (9.0% versus 1.5%).  At the time of the most recent repo rate reduction last August, the spread was narrowed back to 400 bps (9.0% versus 5.0%), and last month it widened to 750 bps (12.5% on lending and 5.0% on borrowing). 

Another change made in October was to replace a regular notification that policy might be eased in the future to a pledged readiness to take the necessary policy actions to ensure stability on domestic markets.  That promise is repeated in today’s new statement.  The statement attributes a recent sharp increase of CPI inflation to 7.7% on base effects affecting food and opines that the tighter policy since October should forestall the development of second-order inflation from the recent spike in prices and drop in the Turkish lira.  It is noted, too, that credit growth has slowed to a more “reasonable” speed.

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



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