Turkey Monetary Policy


Turkey: Central Bank maintains key rates, but announces other adjustments

April 22, 2015

At its 22 April 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. The Bank also 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%. In two additional announcements on the same day, the Bank announced that it had decided to reduce the Foreign Exchange deposit lending rates from 4.5% to 4.0% for USD and from 2.5% to 2.0% for EUR as of 24 April. In addition, the Bank decided to raise the remuneration rate for required reserves held in Turkish liras by 50 basis points, effective 8 May.

Mirroring the previous statement, the CBRT pointed out that loan growth remains at reasonable levels amidst a backdrop of tight monetary policy and macroprudential measures. The Bank added 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 improve 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. In addition, the Bank decided to reduce the FX deposit lending rates and increase the partial remuneration rate on lira required reserves to “support financial stability.”

Looking forward, the Bank commented that, “[f]uture 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 20 May.

FocusEconomics Consensus Forecast panelists see the one-week repo rate ending the year at 7.24%. For 2016, the panel expects the rate to rise to 7.47%. Meanwhile, FocusEconomics Consensus Forecast panelists see the marginal funding rate ending the year at 11.30%. For 2016, the panel expects the rate to decrease to 10.94%.

Author: Angela Bouzanis, Senior Economist

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Turkey Monetary Policy Chart

Turkey Monetary Policy April 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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