Turkey: Central Bank raises late liquidity window rate following Fed hike
March 16, 2017
At its 16 March monetary policy meeting, the Central Bank of the Republic of Turkey (CBRT) decided to increase its late liquidity window lending rate from 11.00% to 11.75%, while leaving its main policy rates unchanged in an effort to shore up the lira after the U.S. Federal Reserve hiked interest rates for the second time in three months. As a result, the one-week repo rate was held at 8.00%, the overnight lending rate at 9.25% and the one overnight borrowing rate at 7.25%. Market expectations were mixed ahead of the meeting, with some analysts forecasting a bigger hike in the late liquidity window rate or a hike in the overnight lending rate.
Policy makers in Turkey have pushed the cost of lending for commercial banks to a nearly five-year high against a backdrop of high inflation and a weak lira. Inflation rose to the highest rate since April 2012 in February. However, instead of conventional rate hikes the Bank has largely resorted to unconventional measures to tighten financial conditions raising concerns over the institution’s independence since President Tayyip Erdogan is fiercely opposed to interest rate hikes.
The Bank stated that it will maintain a tight monetary stance going forward, until the inflation outlook improves significantly. High inflation is likely to continue in the short-term due to pass-through from the lira’s depreciation and a base effect in food prices.