Turkey Monetary Policy

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Turkey: Central Bank refrains from further cuts in September

September 25, 2014

At its 26 September monetary policy meeting, the Central Bank of the Republic of Turkey (CBRT) decided to maintain the one-week repo rate at 8.25%, as was expected by a majority of market participants. The Bank also left the borrowing rate unchanged at 7.50%, the marginal funding rate at 11.25% and the overnight lending rate at 10.75%.

The Bank’s accompanying statement noted that loan growth remains at reasonable levels due to the tight monetary policy and macroprudential measures and that the external sector remains supportive to current account rebalance. Regarding price developments, the CBRT stated that while the measures adopted since the beginning of the year have had a positive effect on inflation, high food prices continue to dampen the country’s inflation outlook. As in previous statements, the Bank reaffirmed its tight monetary policy stance by “keeping a flat yield curve” until there is a significant improvement in the inflation outlook.

Analysts believe that the Central Bank is more optimistic regarding inflation developments and reckon that the Bank is back on track to restore its credibility. As Yarkin Cebeci, economist at J.P.Morgan, points out:

“In a nutshell, it is encouraging to see that the CBRT has not come up with a new and innovative cut (even when they got more optimistic on inflation) and to see that they remain cautious. Also interesting is to note the increased optimism on inflation prospects. There has been continued worsening in inflation expectations and a market-friendly surprise on this front could help to recover CBRT credibility.”

FocusEconomics Consensus Forecast panelists see the one-week repo rate ending the year at 7.83%. For 2015, the panel expects the rate to rise to 8.80%. Meanwhile, FocusEconomics Consensus Forecast panelists see the marginal funding rate ending the year at 11.35%. For 2015, the panel expects the rate to decline to 11.25%.


Author: Ricard Torné, Head of Economic Research

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Turkey Monetary Policy Chart


Turkey Monetary Policy September 2014 1

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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