Turkey Monetary Policy


Central Bank lowers rates more than expected

At its 16 April meeting, the Central Bank of the Republic of Turkey (CBRT) decided to cut the one-week repo rate by 50 basis points to 5.00%, in a move that caught analysts by surprise, as they had expected a milder 25 basis-points cut. Simultaneously, the Bank also lowered both ends of the monetary policy corridor by 50 basis points, leaving the overnight borrowing rate at 4.00% and the overnight lending rate at 7.00% (6.50% for primary dealers)

The Central Bank deemed the rate cut as well as an increase in reserve requirements necessary, as capital inflows have accelerated and loan growth hovers above the reference rate. The Bank also noted that the external sector is slowing down due to weak global economic activity, whereas domestic demand follows a healthy recovery that, nevertheless, fuels the current account deficit. In addition, the Committee assured that "the proper policy would be to keep interest rates low, while increasing foreign currency reserves via macroprudential measures".

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 5.46% by the end of this year. For 2014, the panel expects the rate to rise to 6.02%.

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Turkey Monetary Policy Chart

Turkey Monetary Policy April 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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