Thursday, September 25, 2014

Turkey holds rates, repeats will maintain tight stance

    Turkey's central bank maintained all its short-term interest rates, including the benchmark one-week repo rate at 8.25 percent, and repeated its guidance that it would maintain a tight monetary policy stance by keeping a flat yield curve "until there is a significant improvement in the inflation outlook."
    The Central Bank of the Republic of Turkey (CBRT), which has been slowly rolling back sharp rate hikes in January, said it tight stance was starting to have a favorable impact on the core inflation trend but elevated food prices continued to delay an improvement in the inflation outlook.
    Declining commodity prices were limiting upside risks to inflation, the bank added.
    Turkey's core inflation rate eased marginally to 9.7 percent in August from July's 9.8 percent but has remained above 9 percent for the last six months. The headline inflation rate rose to 9.54 percent in August from 9.32 percent.
    Earlier this month Erdem Basci, governor of CBRT, argued against a sharp cut in interest rates as favored by many in the Turkish government, saying it would stoke inflation and prompt investors and Turks to turn to U.S. dollars and boost inflation.

    Basci also said there were upside risks to the central bank's year-end inflation target of 7.6 percent.
    The central bank also said loan growth was continuing at reasonable levels in response to its tight policy stance and exports remain supportive of balanced growth despite weakening global demand.
    Since Jan. 28, when the central bank hiked its repo rate by 550 basis points in response to capital outflows and and plunge in the lira currency, the CBRT has cut its repo rate by 175 points and moved down its overnight interest rate corridor.
    Turkey's lira currency has been depreciating since late July after rebounding following the central bank's rate hike in January. It was trading at 2.25 to the dollar today, down 4.4 percent this year.


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