Turkey's central bank maintained its policy rate along with its short-term borrowing and lending rates and repeated that it would continue to tighten policy until the outlook for inflation is in line with the bank's targets.
The Central Bank of the Republic of Turkey (CBRT), which has been tightening since May in response to a weakening of the lira, also repeated its September statement that inflation was expected to fall further in coming months though core inflation is "likely to hover above the inflation target for some time due to the exchange rate volatility observed during the recent months."
The bank said domestic demand and exports continued to grow at a moderate pace and the current policy framework was helping improve the current account balance, with the CBRT's cautious policy stance, recent macroprudential measures and weak capital flows gradually bringing down loan growth to more reasonable levels.
"The Committee will maintain the cautious monetary policy stance and continue implementing additional monetary tightening at the appropriate frequency until the medium term inflation outlook is in line with the medium term targets," the CBRT said, repeating its statement from Sept. 17.
Turkey's headline inflation rate eased to 7.88 percent in September from 8.17 percent in August, the third monthly decline but still above the bank's 5.0 percent target.
The central bank's governor said in late September that he would only increase interest rates if the outlook for medium-term inflation starts to rise and the central bank had already tightened its policy more than was considered necessary.
Turkey's lira fell sharply in May and then in August in response to expectations that the U.S. Federal Reserve would reduce its asset purchases. But since late September, the lira has been strengthening, trading at 1.97 to the U.S. dollar today compared with 2.03 at the end of September, reflecting growing investor confidence following the Fed's decision to postpone tapering of its quantitative easing.
But the lira is still 9 percent down from 1.79 to the dollar it was trading at on Dec. 31, 2012. The central bank governor has said he expects the lira to rise to 1.92 by year-end.
The central bank also repeated that it would continue to adjust the composition of lira liquidity provided and in "order to contain the repercussions of uncertainties in global monetary policies on the domestic economy, maintaining the increased predictability of the Turkish lira liquidity policy is deemed important."
Turkey's Gross Domestic Product expanded by 2.1 percent in the second quarter from the first, for annual growth of 4.4 percent, up from 2.9 percent. The current account deficit narrowed to $1.995 in August from $5.966 billion in July.
The CBRR's monetary policy committee maintained the benchmark one-week repo rate at 4.5 percent along with the overnight borrowing rate at 3.5 percent and the overnight lending rate at 7.75 percent, along with the 6.75 percent rate on borrowing facilities for primary dealers.