Turkish Monetary Policy Tightened Further in Anti-Inflationary Move

August 20, 2013

The overnight central bank lending rate, which was boosted 75 basis points in July, has been raised by a further 50 bps to 7.75% in an action that caught analysts by surprise.  In a statement of explanation, officials cited dangers posed by above-target inflation and financial market volatility (i.e. lira depreciation) and left the door open to more restraint if excessive inflation and lira depreciation continue.

In order to contain the adverse impact of the above-target inflation indicators on the pricing behavior, the Committee has decided to strengthen the cautious stance of the monetary policy. The cautious stance will be maintained until the inflation outlook is in line with the medium term targets. In this respect, additional monetary tightening will be implemented whenever needed. …Developments regarding price stability and financial stability will be closely monitored and necessary adjustments will be made in the composition of Turkish lira liquidity provided by the Central Bank.

The main signal of monetary policy, the one-week repo rate, was left at 4.5% where such has been since 125 basis points of reduction between December 2012 and May 2013.  Likewise, the overnight borrowing rate, which had been reduced by a total of 150 bps to 3.5% between January and May this year, was not changed, either.  CPI inflation of 8.8% as of July is almost four percentage points above the Central Bank of the Republic of Turkey’s medium-term target, and 2-year Turkish bond yields have roughly doubled in the past three months.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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One Response to “Turkish Monetary Policy Tightened Further in Anti-Inflationary Move”

  1. I think this is a good move especially if a country is suffering from economic downfall. Great move by the Turkey government in order to preserve their assets.