Turkey Monetary Policy


Central Bank keeps rates unchanged; vows to tighten liquidity

At its 21 January monetary policy meeting, the Central Bank of the Republic of Turkey (CBRT) decided to maintain the marginal funding rate - previously known as the overnight lending rate - at 7.75% and the one-week repo rate at 4.50%. The decision was on par with market expectations. The Bank also maintained the overnight lending facility for primary dealers at 6.75% and the borrowing rate at 3.50%.

In its statement, the Central Bank reaffirmed that domestic demand and exports continued to grow at a moderate pace in Q4 and that the current account deficit is expected to decline in 2014. The Bank also stated that loan growth moderated on the back of the cautious monetary policy stance, fresh macroprudential measures, and weak capital flows. Regarding price developments, the Bank stated that inflation will likely hover around 5.0% due to, "recent tax adjustments and lagged effects of exchange rate developments." In addition, the Bank will remain vigilant to spillovers stemming from the recent spike in the risk premium.

The Central Bank vowed to tighten liquidity in order to anchor the effective interbank market policy rate at around 9.00% on additional tightening days, instead of at the marginal funding rate of 7.75%. With this move, the Bank aims to align inflation with the Bank's medium-term target. That said, analysts were confused by the announcement as the Bank did not mention how frequently these additional tightening days would occur nor how the Central Bank would bring about the new rate of 9.00%.

FocusEconomics Consensus Forecast panelists see the marginal funding rate ending the year at 8.94%. For 2015, the panel expects the rate to decline to 8.44%. Meanwhile, FocusEconomics Consensus Forecast panelists see the one-week repo rate ending the year at 5.05%. For 2015, the panel expects the rate to rise to 6.22%.

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Turkey Monetary Policy Chart

Turkey Monetary Policy January 2014

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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