Turkey Monetary Policy


Central Bank maintains cautious stance

At its 17 December monetary policy meeting, the Central Bank of the Republic of Turkey (CBRT) decided to maintain the one-week repo rate at 4.50% and the overnight lending rate for non-primary dealers at 7.75% (primary dealers: unchanged at 6.75%). The decision was on par with market expectations. The Bank also maintained the overnight borrowing rate at 3.50%. Additionally, the Bank decided to cut both the maximum amount of one-week repo financing from TRY 10 billion to TRY 6 billion and the total amount of funds available to primary dealers from TRY 23 billion to TRY 6.5 billion, in an attempt to anchor the effective interbank market policy rate at around 7.75%. With this additional tightening, the Bank seeks to contain inflationary pressures and to shore up the lira.

In its statement, the Central Bank reaffirmed that domestic demand and exports continue to grow at a moderate pace and that the current policy framework is contributing to improving the current account deficit, as well as to containing inflationary risks. Regarding price developments, the Bank stated that inflation would decline further in the "forthcoming period", although it will hover above the Central Bank's target, "for some time." The Monetary Policy Committee stated that its currently cautious stance - which may include additional monetary tightening - will remain in place until inflation returns to the Bank's medium-term target.

At a conference on monetary policy held on 11 December, Governor Erdem Basci affirmed that the Central Bank will continue to use the overnight lending facility - also know as the marginal funding rate - which is the rate at which banks have to borrow. Although the overnight lending rate is now the relevant rate, Basci refused to call it the "policy rate". Instead, he stated that, "each one of the main rates is the policy rate," thus adding creativity to one of the most "unorthodox" monetary policies in the world.

FocusEconomics Consensus Forecast panelists see the one-week repo rate ending the year at 4.53%. For 2014, the panel expects the rate to rise to 5.23%. Meanwhile, FocusEconomics Consensus Forecast panelists see the overnight lending rate ending the year at 7.69%. For 2014, the panel expects the rate to rise to 8.05%.

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Turkey Monetary Policy Chart

Turkey Monetary Policy December 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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