Turkey Monetary Policy


Central Bank cuts policy rate, maintains interest rate corridor

At its 18 December meeting, the Central Bank of the Republic of Turkey (CBRT) cut the one-week policy rate by 25 basis points to 5.50%, in a decision expected by the market. The Central Bank, nonetheless, held the overnight borrowing rate steady at 5.00% and the overnight lending rate at 9.00% (8.50% for primary dealers), thus surprising the market, which had widely anticipated the CBRT to narrow the interest rate corridor that defines the Bank's monetary policy.

Once again, the Bank reiterated that the rebalancing process between external and domestic demand continues, with domestic demand growing at a moderate pace and exports expanding despite weakening global activity. The CBRT explained that "aggregate demand conditions support disinflation and the current account deficit continues to decline gradually".

Regarding price developments, the Central Bank expects 2012 inflation to be significantly lower than previously forecasted owing to a more favourable evolution in unprocessed food prices. Monetary authorities, however, warned that they will continue to monitor the effect of the recent hike in administered and energy prices on the medium term inflation outlook.

The Bank shifted towards a less dovish stance, removing previous references regarding further cuts in the policy rate. Instead, the CBRT stated that "if deemed necessary for financial stability, a measured adjustment in the interest rate corridor might also be considered".


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Turkey Monetary Policy Chart

Turkey Monetary Policy December 2012

Note: 1-week repo rate in %, from 25 May 2010 onwards. From January 2008 until 25 May 2010, data refer to overnight borrowing rate.
Source: Central Bank of the Republic of Turkey (CBRT).

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