Turkey Monetary Policy April 2016

Turkey

Turkey: Central Bank makes second consecutive adjustment to its corridor

April 20, 2016

At its 20 April monetary policy meeting, which was the first chaired by Governor Murat Cetinkaya, the Central Bank (CBRT) decided to cut the marginal funding rate by 50 basis points to 10.00%. The Bank also cut the marginal funding rate in the March meeting. At the April meeting, the Bank decided to leave the one-week repo rate at 7.50% and the overnight borrowing rate at 7.25%. This move intended to narrow the Bank’s interest rate corridor and was in line with market analysts’ expectations.

As in the previous meeting, the Bank defended its decision by citing improved global financial conditions, which diminished the need for a wide interest rate corridor. The Committee saw this action as a “measured” step toward monetary policy simplification, while stating that the implementation of the structural reforms that the government has announced will propel potential growth.

Beyond that, the Bank reaffirmed that the tight monetary policy and macro-prudential measures are keeping loan growth at reasonable levels. The Bank also noted that demand from the European Union is supporting exports at an increasing pace, offsetting worsening dynamics in other export markets.

Regarding price developments, the Central Bank stated that inflation had declined significantly in March due to lower unprocessed food prices. While this trend will continue in the short-term, any improvement in underlying core inflation will remain limited. Looking forward, the Bank commented that, “future monetary policy decisions will be conditional on the inflation outlook.” Moreover, the Bank reaffirmed its tight monetary policy stance, stating that it “will be maintained”. The next meeting is scheduled for 24 May.

Moreover, on 26 April, Governor Cetinkaya reiterated his commitment to simplify the current monetary policy frame work, “as much as circumstances will allow.” That said, he also signaled that price stability will be his top priority.

FocusEconomics Consensus Forecast panelists see the one-week repo rate ending the year at 8.54%. For 2017, the panel expects the rate to rise to 8.71%. Meanwhile, FocusEconomics Consensus Forecast panelists see the marginal funding rate ending the year at 10.38%. For 2017, the panel expects the rate to rise to 10.60%.


Author: Ricard Torné, Head of Economic Research

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Turkey Monetary Policy Chart


Turkey Monetary Policy May 2016

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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