Tuesday, January 21, 2014

Turkey to tighten policy, aims at 9% interbank money rate

    Turkey's central bank maintained its policy rates but said "additional monetary tightening was necessary" to ensure that inflation remains in line with the bank's 5 percent target and the bank would raise its target for interbank money market rates to 9.0 percent from 7.75 percent.
    The Central Bank of the Republic of Turkey (CBRT) has been tightening its policy since May when global investors started to shift away from emerging markets and has come under renewed pressure to raise rates further to shore up the lira currency as investors have become unnerved by a government corruption scandal ahead of this year's elections.
    Further pressure on the central bank to tighten followed after data showed that Turkey's current account deficit widened in November while inflation rose in December.
    The CBRT said data from the last quarter of the year showed moderate growth in domestic demand and exports and the current account, excluding gold trading, was expected to continue to improve in 2014.
     But the bank's "cautious monetary policy stance," along with other macro prudential measures and weak capital inflows has slowed loan growth, which should lead to a further decline in Turkey's current account deficit in 2014, the bank said.
     The current account deficit widened to US$ 3.935 billion in November from $2.924 billion in October but still well below April's $8.013 billion deficit, a high for 2013.
    Turkey's inflation rate rose marginally to 7.4 percent in December from November's 7.3 percent, below July's 8.9 percent, a high for 2013.
    The CBRT said inflation was likely to hover above its 5.0 percent target for some time due to recent tax changes and the lagged effects of exchange rate developments.
    "The Committee stated that the liquidity stance should be tightened to align the inflation outlook with the medium term targets," the bank said, adding interbank money market rates would "materialize at 9 percent during additional monetary tightening days, instead of 7.7 5 percent (the marginal funding rate)."
    Turkey's lira fell 16 percent against the U.S. dollar in 2013, ending the year at 2.12 to the dollar, but has weakened further in the first few weeks of this year, dropping to 2.25 today, a fall of almost 6 percent since the start of this year.
    The central bank's main short term interest rates were maintained, with the overnight lending rate at 7.75 percent and the borrowing rate at 3.5 percent - the ceiling and the bottom in the rate corridor - and the one-week repo rate at 4.5 percent.



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