Turkey Monetary Policy May 2016


Turkey: Central Bank cuts marginal funding rate for third consecutive time

May 24, 2016

At its 24 May monetary policy meeting, the Central Bank (CBRT) decided to cut the marginal funding rate by 50 basis points to 9.50%. The Bank also cut the marginal funding rate in the March and April meetings. At the May meeting, the Bank decided to leave the one-week repo rate at 7.50% and the overnight borrowing rate at 7.25%. This move, which is intended to narrow the Bank’s interest rate corridor, was in line with market analysts’ expectations.

The Bank’s statement was very similar to that of the April meeting. It stated that the tight monetary policy and macro-prudential measures are keeping loan growth at reasonable levels. Along with its statement on an improvement in exports to the European Union, which was carbon-copied from last month’s statement, the Bank also praised the positive impact on growth from domestic demand.

Although the Committee acknowledged an increase in global volatility, the resilience of Turkey’s economy allowed the Bank to take another “measured” step toward monetary policy simplification.

Regarding price developments, while the Central Bank stated that overall inflation is falling significantly due to lower unprocessed food prices, it also declared that the improvement in underlying core inflation remains limited. Looking forward, the Bank commented that, “future monetary policy decisions will be conditional on the inflation outlook.” Moreover, the Bank reaffirmed its tight monetary policy stance, stating that it “will be maintained”. The next meeting is scheduled for 21 June.

FocusEconomics Consensus Forecast panelists see the one-week repo rate ending the year at 8.20%. For 2017, the panel expects the rate to rise to 8.25%. Panelists see the marginal funding rate ending the year at 9.75%. For 2017, the panel expects the rate to rise to 10.05%.


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Turkey Monetary Policy Chart

Turkey Monetary Policy June 2016 0

Note: 1-week repo rate, overnight borrowing rate and marginal funding rate in %.
Source: Central Bank of the Republic of Turkey (CBRT).

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