Turkey Monetary Policy


Central Bank continues aggressive rate cuts

At its 16 May meeting, the Central Bank of the Republic of Turkey (CBRT) decided to cut the one-week repo rate again by 50 basis points to 4.50%, in a move that caught analysts by surprise, as they had expected a milder 25 basis-point cut. Simultaneously, the Bank also lowered both ends of the monetary policy corridor by 50 basis points, leaving the overnight borrowing rate at 3.50% and the overnight lending rate at 6.50% (6.00% for primary dealers)

The Central Bank judged the rate cut as well as an increase in both reserve requirements on short term FX liabilities and the reserve option coefficient necessary, as capital inflows remain strong and loan growth hovers above the reference rate. The Bank also noted that exports are moderating due to weak global economic activity, whereas domestic demand follows a healthy recovery. In addition, the Committee maintained a dovish stance, stating that "the proper policy would be to keep interest rates low, while increasing foreign currency reserves via macroprudential measures". These moves are also in line with Governor Erdem Basci's statement that the Central Bank will seek to prevent the lira's appreciation.

Regarding price developments, the Central Bank acknowledged that weak global demand and subdued commodity prices are helping to contain inflationary pressures.

FocusEconomics Consensus Forecast panellists see the Central Bank keep the one-week repo rate unchanged, resulting in an interest rate of 5.12% by the end of this year. For 2014, the panel expects the rate to rise to 5.61%.

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Turkey Monetary Policy Chart

Turkey Monetary Policy May 2013

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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