Turkey's central bank kept its policy rates steady but scrapped its one-month repurchase auctions to limit the impact of exchange rate fluctuations on inflation and the volatility of short term money market rates.
The Central Bank of the Republic of Turkey (CBRT), which has tightened policy since May to protect the lira and curtail inflation, also said this move, which would strengthen the bank's "cautious stance," would result in interbank money market rates of around 7.75 percent.
The central bank also repeated that it expects inflation to hover above its target for some time due to the exchange rate volatility in recent months and it would maintain a "cautious monetary policy" until inflation is in line with the bank's target.
Turkey's inflation rate fell to 7.71 percent in October, the third month in a row of declining inflation from a year-high of 8.88 percent in July while the exchange rate of Turkey's lira strengthened in the last week following a sharp depreciation from May through August.
In its latest inflation report, the CBRT revised upwards its estimate for inflation this year to 6.8 percent from a previous forecast of 6.2 percent and forecast 2014 inflation of 5.3 percent, up from a previous 5.0 percent. The bank maintained its medium-term 5.0 percent inflation target.
The central bank left its benchmark one-week repo rate at 4.5 percent, the overnight lending rate at 7.75 percent and the borrowing rate at 3.5 percent. While leaving the one-week repo rate steady since May, the CBRT has raised the overnight lending rate, the ceiling in its interest corridor, most recently by 50 basis points in August.
The central bank said domestic demand and exports had continued to grow at a moderate pace and it expects loan growth rates to decline to "more reasonable levels" due to the bank's cautious stance, recent macro prudential measures and weak capital flows.
"Accordingly, a moderate decline in the current account deficit excluding gold trade is expected to continue," the CBRT said, repeating its statement from earlier months.
Turkey's current account deficit rose to US$ 3.28 billion in September from $2.43 billion in August, but was sharply below a 2013-high of $8.0 billion in April.
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 lira fell sharply in May and August, hitting a low of 2.07 to the U.S. dollar on Sept. 6 but has risen in the last week, trading at 2.02 earlier today, partly due to the recent rate cut by the European Central Bank and continued asset purchases by the U.S. Federal Reserve. But the lira is still 11 percent lower than at the start of the year.
The central bank's governor expects a lira exchange rate of 1.92 to the dollar by the end of the year.