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Turkey Monetary Policy February 2020

Turkey: Central Bank cuts policy rate in February for sixth consecutive time

At its 19 February Monetary Policy Committee (MPC) meeting, Turkey’s Central Bank extended its easing cycle by cutting the one-week repo rate for the sixth time in a row. The latest decision brought the rate down to 10.75%, bringing the real interest rate further below zero. Since July last year when the easing cycle commenced with the appointment of Murat Uysal as governor, the one-week repo rate has been cut by 13.25 percentage points.

The Bank justified yet another rate cut by stating that the “course of inflation is considered to be broadly in line with the year-end inflation projection” and that its current monetary policy stance “remains consistent with the projected disinflation path”. This is despite inflation surprising market analysts on the upside in January, coming in at 12.2% and rising for the third month running. The Bank also alluded to the fragility of the economic recovery, stating that investment and employment remained weak. The decision to lower the rate was likely influenced by President Erdogan’s preference for single-digit interest rates and the government’s renewed push for credit growth to stimulate the economy. The rate cut came despite continued lira weakness—by 18 February the currency had depreciated 1.9% against the USD since the start of the year.

In the accompanying press release, the Central Bank reiterated that in order to keep inflation on a downward trajectory, a cautious stance was needed. However, the MPC removed the mention of an improved inflation outlook and added that “developments in credit growth and its composition are closely monitored for their impact on external balance and inflation.”

The next Monetary Policy Committee meeting is scheduled for 19 March.

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