Turkey: Central Bank shifts monetary policy
January 4, 2012
At its 22 December meeting, the Monetary Policy Committee (MPC) left the policy rate unchanged at 5.75%, as was expected by the market. The Central Bank also held the overnight borrowing rate steady at 5.0%, and left the overnight lending rate (for primary dealers) at 12.0%. More recently, on 3 January, the Central Bank (CBRT) held its latest last public meeting with investors ? from now on, the Bank will revert to private meetings in order to improve communication with the market. In the public meeting, CBRT Governor Erdem Basci announced a further tightening of monetary policy amid increasing inflationary pressures. According to monetary authorities, the Bank will gradually cease to provide liquidity to the market using the one-week repo rate (5.75%) and will leave the interest rate to be determined by the market. As the market rate is likely to hover around the Bank's overnight lending rate (12.0%), the move will signify a de facto tightening of monetary conditions. The decision means that, going forward, the lending rate will become the relevant monetary policy rate. Despite the earlier announcement, on 10 January, the CBRT held a regular auction using the one-week repo rate, following a strengthening of the lira at the beginning of the year, which partly reflected the anticipated de facto increase in the policy rate. In the future, the Central Bank is likely to continue to accommodate its policy interventions according to the currency's performance.