Turkey Monetary Policy August 2016


Central Bank takes another measured step towards policy simplification

At its 23 August monetary policy meeting, the Central Bank of the Republic of Turkey (CBRT) decided to cut the marginal funding rate by 25 basis points (bps) to 8.50%, 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 five policy meetings.

The adverse effect of July’s unsuccessful military coup on Turkey’s financial markets has been offset by recent measures approved just after the military coup and reduced volatility in the global financial markets. Moreover, policies implemented by the Central Bank since August 2015 have improved the resilience of the economy against external shocks. Against this backdrop, the CBRT decided to take a “measured and cautious” step towards monetary policy simplification.

The Bank reaffirmed in its statement that its tight monetary policy and macro-prudential measures are keeping credit growth at reasonable levels. However, while moderate loan growth, positive terms of trade and resilient demand from the European Union will help to improve the current account deficit, the fall in tourism revenues will have a negative impact on external imbalances. The Bank stated that despite remaining strong, domestic demand has weakened somewhat.

Regarding price developments, the Central Bank stated that overall inflation will likely trend lower despite higher unprocessed food prices. The Bank also affirmed that core inflation is expected to improve gradually and that a tighter liquidity stance is still necessary.

Looking forward, the Bank commented that, “future monetary policy decisions will be conditional on the inflation outlook.” The Bank also reaffirmed its tight monetary policy stance, stating that it “will be maintained”. The next meeting is scheduled for 22 September.

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 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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