Turkey: Central Bank keeps policy rate on hold
October 20, 2011
At its 20 October meeting, the Monetary Policy Committee (MPC) left the policy rate unchanged at 5.75%, as was expected by market analysts. The Central Bank also held the overnight borrowing rate steady at 5.0%, but raised the overnight lending rate to 12.5% from 9.0%. The widening in the rate corridor is aimed at curbing the growing current account deficit by weakening the currency and slowing the pace of credit expansion. The Bank stated that it expects a significant increase in inflation in the coming months due to excessive depreciation of the lira and an unfavourable base effect from food prices. On 26 October, monetary authorities cut the reserve requirement ratios (RRR) on lira deposits with a maturity of up to one month to 11.0% from 16.0%. In addition, deposits with a maturity of three months were cut to 11.0% from 12.5% and six month maturities were cut to 8.0% from 9.0%. The move is designed to provide TRY 11 billion in liquidity to the banking system, according to the Bank's estimate.