Unchanged Turkish Monetary Policy Settings Following First Meeting of 2012

January 24, 2012

The monetary authorities at the Central Bank of the Republic of Turkey declined to change its policy stance, which had been tightened last October to prevent second-order effects from temporarily accelerated price increases late in 2011.  The one-week repo rate, which is the primary policy rate, has been at 5.75% since last August, and there is a 7.5 percentage point differential between the overnight lending rate of 12.5% and the overnight borrowing rate of 5.0%.  That spread widened sharply last October when officials raised the lending rate from 9.0% but left the borrowing rate steady.  Today’s statement reaffirms points made in the previous statement of December 22.

The Committee has indicated that tight monetary policy stance should be maintained for a while in order to keep inflation outlook consistent with the medium term targets. However, given the prevailing uncertainties regarding the global economy, it would be appropriate to preserve the flexibility of the monetary policy. Therefore, the impact of the measures undertaken on credit, domestic demand, and inflation expectations will be monitored closely and the amount of Turkish lira funding via one-week repo auctions will be adjusted in either direction, as needed.

Moreover, considering the ongoing improvement in the current account dynamics and the sudden swings in global conditions, the Committee has indicated that intraday foreign exchange sale auctions will be more effective and more consistent with the monetary policy objectives, compared to the regular foreign exchange sale auctions.

Inflation spiked to 10.4% at end-2011 in part because of lira weakness but is targeted to fall to 5.0% by the end of this year.  Third-quarter GDP was 8.2% greater than a year before.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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