No Changes Made in Turkish Central Bank Rates

June 21, 2012

A fourth straight monthly policy meeting at the Central Bank of the Republic of Turkey ended in agreement not to change any part of the central bank rate structure. The main policy rate, the 7-day repo, has been at 5.75% since a 50-basis point cut last August.  The last change in the overnight borrowing rate, a hike to 5.0% from 1.5%, also occurred then.  The overnight lending rate was lifted by 350 bps last August to 12.5% but trimmed back to 9% in February of this year, and that’s where such remains.

Monetary authorities are trying to meet a number of somewhat conflicting objectives.  According to a statement released today, global uncertainty poses a threat to Turkish growth, which slowed significantly in the first quarter of 2012 but seems somewhat better in the present quarter. “Overall aggregate demand conditions support disinflation, and the improvement in the current account balance is expected to continue in the forthcoming period,” thus meeting the goal of a better balance between net exports and domestic demand.  On-year CPI inflation slowed to 8.3% last month from 10.4% in March and 11.1% in April.  Nevertheless, “pricing behavior should be closely monitored as inflation will continue to stay above the target for some time. Therefore, additional monetary tightening may be implemented along the guidance presented in the April and May Committee meetings.”  A final matter of interest to policymakers is lira stability in view of fairly significant depreciation during 2011.

As these various priorities have been balanced, officials have endeavored to endow interest rate policy with flexibility, shifting the burden of containing inflation to other measures.  This month, they increased limits on how much of bank reserves can be held as gold.  The decision not to change interest rates of overall reserve requirements was as analysts had predicted.

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



Comments are closed.