Turkish Monetary Officials Reluctant to Cut Rates Amid Heightened Risks

May 20, 2015

Monetary Policy Committee members chose to leave the central bank’s one-week repo rate at 7.5%, the overnight lending rate at 10.75%, and the overnight borrowing rate at 7.25%.  Consumer prices rose 7.9% in the year to April.  A statement released after today’s policy meeting sets a more cautious tone than government officials seek:

Recently elevated volatility in the exchange rates has limited the improvement in the core inflation, as stated in the Inflation Report. This, combined with the uncertainty in global markets and volatility in energy and food prices, makes it necessary to maintain the cautious stance in monetary policy.

The statement talks of weak external demand, moderately rising domestic demand, and an improved current account and ties future decisions on monetary policy to the evolution of the inflation outlook.  Following a 550-basis point increase in January 2014 to 10.0%, the one-week repo rate was reduced by 50 bps in May 2014, 75 bps in June 2014, 50 bps in July 2014, and a combined 75 bps in the first two months of 2015, but it has been unchanged since February’s 25-bp cut.  The overnight lending and borrowing rates also were cut on February 24, by 50 bps and 25 bps, respectively.  Parliamentary elections are scheduled for early June.

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

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