Turkey Monetary Policy September 2016


Central Bank cuts the marginal rate in September

At its 22 September monetary policy meeting, the Central Bank of the Republic of Turkey (CBRT) decided to cut the marginal funding rate by 25 basis points (bps) from 8.50% to 8.25%, while leaving the one-week repo rate at 7.50% and the overnight borrowing rate at 7.25%. This came on the back of reductions in the marginal funding rate at the previous six policy meetings. The next meeting is scheduled for 20 October.

The Bank commented that recent high-frequency indicators point to a deceleration of the Turkish economy in the third quarter. The latest developments in tourism will likely have a negative effect on the economy in the short term, but the lagged effects of developments in terms of trade will positively affect the current account balance. The Committee also suggested that domestic demand will recover in the last quarter of this year as the implementation of structural reforms bear fruit.

Regarding price developments, the Central Bank stated that inflation will likely fall in the short term against the backdrop of lower food prices, though this improvement will be limited due to the recent tax adjustment in fuel prices. Looking forward, the Bank commented that, “future monetary policy decisions will be conditional on the inflation outlook. Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the cautious monetary policy stance will be maintained.”

FocusEconomics Consensus Forecast panelists see the one-week repo rate ending the year at 7.58%. For 2017, the panel expects the rate to rise to 7.73%. Panelists see the marginal funding rate ending the year at 8.50%. For 2017, the panel expects the rate to rise to 8.81%.

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Turkey Monetary Policy Chart

Turkey Monetary Policy August 2016

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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