Central Bank of the Republic of Turkey

March 17, 2015

Monetary officials in Turkey have been subjected to relentless pressure from the autocratic Prime Minister Erdogan to reduce interest rates more quickly.  Selling pressure on the lira had lifted inflation, forcing the central bank to jack up its one-week repo rate by 550 basis points to 10% in January 2014.  At that time, too, the overnight borrowing rate was raised 450 bps to 8.0%, and the overnight lending rate was kicked 425 bps higher to 12.0%.  A series of cuts later in 2014 was followed in January but a 50-bps cut of the one-week repo rate this past January and another 25-bp cut announced on February 24.  Last month also saw declines in the overnight borrowing rate to 7.25% from 7.5% and lending rate to 10.75% from 11.25%. 

Erdogan thought the February reductions were too small and wanted more done now, but central bank officials had stressed the “measured” approach of their easing last time and decided not to cut further this month.  In explaining their reasons and giving some guidance to future actions, a statement released after today’s meeting said,

Uncertainty in global markets and elevated food prices necessitates maintaining the cautious stance in monetary policy. Accordingly, the Committee decided to keep the interest rates at current levels.  Future monetary policy decisions will be conditional on the improvements in the inflation outlook. Inflation expectations, pricing behavior and other factors that affect inflation will be monitored closely and the cautious monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.

Turkish consumer prices advance 7.5% between February 2014 and February 2015, while the current account deficit is hovering near 4% of GDP. 

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.