Turkey Monetary Policy


Central Bank narrows ceiling of monetary policy corridor

At its 26 March meeting, the Central Bank of the Republic of Turkey (CBRT) continued to conduct its unorthodox monetary policy, by cutting the top end of its policy corridor, while leaving the key policy rate and the borrowing rate unchanged. As a result, the one-week repo rate was left at 5.50%, in a move widely expected by market analysts, while the overnight borrowing rate was maintained at 4.50%. However, the Central Bank cut the overnight lending rate by 100 basis points to 7.50% (7.00% for primary dealers), in a move that caught analysts by surprise, as they had anticipated no change.

The Central Bank deemed maintaining a wide corridor less necessary, as capital inflows, despite remaining strong, decelerated in recent weeks. The Bank also stated that the current account deficit is expected to increase in the coming months, amid a rebound in domestic demand. The Bank explained that "ongoing uncertainties regarding the global economy necessitate the monetary policy to remain flexible in both directions". Regarding price developments, the Central Bank acknowledged that weak global demand and subdued commodity prices help 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 March 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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