Turkey Monetary Policy


Turkey: Central Bank maintains key rates

March 17, 2015

At its 17 March monetary policy meeting, the Central Bank (CBRT) decided to keep the one-week repo rate unchanged at 7.50%. The decision was in line with market expectations. In addition, the Bank decided to maintain the borrowing rate at 7.25%, the marginal funding rate at 10.75%, and the interest rate on borrowing facilities provided for primary dealers at 10.25%.

Similar to the previous statement, the CBRT pointed out that loan growth remains at reasonable levels against a backdrop of tight monetary policy and macroprudential measures. The Bank stated that although external demand is still weak, domestic demand is contributing to growth. Regarding the external sector, the Bank restated that favorable terms of trade and the moderate path of consumer loans will continue to contribute to rebalancing the current account.

Regarding consumer price developments, the Central Bank underscored that the current monetary policy stance and macroprudential policies are having a desirable effect on inflationary pressures. However, elevated food prices and global uncertainty reaffirm a cautious monetary policy stance. Against this backdrop, the CBRT decided to keep interest rates unchanged.

Looking forward, the Bank commented that, “future monetary policy decisions will be conditional on the improvements in the inflation outlook.” Moreover, the Bank reaffirmed its tight monetary policy stance by, “keeping a flat yield curve, until there is a significant improvement in the inflation outlook.” The next monetary policy meeting is scheduled for 22 April.

The decision comes amid a backdrop of heightened tensions between the Central Bank and the government. President Recep Tayyip Erdogan has been publicly criticizing the Central Bank for not cutting rates as oil prices are in freefall. This situation caused concerns to resurface regarding the independence of the Central Bank.

FocusEconomics Consensus Forecast panelists see the one-week repo rate ending the year at 7.36%. For 2016, the panel expects the rate to rise to 7.48%. Meanwhile, FocusEconomics Consensus Forecast panelists see the marginal funding rate ending the year at 11.00%. For 2016, the panel expects the rate to increase to 11.13%.

Author: Angela Bouzanis, Senior Economist

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Turkey Monetary Policy Chart

Turkey Monetary Policy March 2015 0

Note: 1-week repo rate, overnight borrowing rate and marginal funding rate in %.
Source: Central Bank of the Republic of Turkey (CBRT).

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