Turkey: Central Bank hikes rates amid high inflation
January 24, 2017
At its 24 January monetary policy meeting, the Central Bank of the Republic of Turkey (CBRT) decided to increase the marginal funding rate from 8.50% to 9.25%. At the same time, the one-week repo rate was held at 8.00%, while the overnight borrowing rate was kept at 7.25%.
The Bank commented that recently released GDP data indicate a partial recovery of the Turkish economy amid weak domestic demand. The CBRT expects the economy to continue expanding at a moderate pace on the back of the supportive measures and incentives provided recently. Moreover, the implementation of structural reforms should contribute positively to potential growth.
Regarding consumer prices, the Central Bank commented that inflation risks remain on the upside on the back of the excessive fluctuations in the exchange rate. Moreover, the significant rise in inflation is expected to continue in the short term due to the lagged pass-through effects and the volatility in food prices. As a result, the Bank decided to tighten its monetary stance taking into consideration the aforementioned factors while also commenting that it will monitor future price developments closely and maintain its cautious monetary policy stance.
Author: Oliver Reynolds, Economist