Turkey: Central Bank keeps rates unchanged, hints at future easing
September 6, 2012
At its 16 August meeting, the Central Bank of the Republic of Turkey (CBRT) left the one-week policy rate unchanged at 5.75%, as was expected by the market. The Central Bank also held the overnight borrowing rate steady at 5.00%, and left the overnight lending rate at 11.50% (11.00% for primary dealers). The Bank reiterated that the rebalancing process between external and domestic demand continues and therefore the current account balance is expected to continue to improve. According to the CBRT, domestic demand is showing a modest recovery, while exports continue to grow despite a weakening global outlook. Regarding price developments, the Central Bank expects inflation to follow a downward trend in the coming months. Monetary authorities, however, added that "pricing behaviour should be closely monitored as inflation will continue to stay above the target for some time". The CBRT also stated explicitly that "the interest rate corridor may be narrowed gradually in the forthcoming period", likely indicating that the Central Bank will cut the upper band of the corridor in the coming months, as inflationary pressures continue to ease progressively.