Wednesday, April 22, 2015

Turkey holds rate, stance helps inflation, caution needed

     Turkey's central bank maintained its key policy rates, including the one-week repurchase rate at 7.50 percent, repeating its statement from March that its "ongoing cautious monetary policy" is having a favorable impact on inflation but "uncertainty in global markets and elevated food prices necessitates maintaining the cautious stance in monetary policy."
     But the Central Bank of the Republic of Turkey (CBRT), which has cut its rate 75 basis points this year as it slowly unwinds a 550 point emergency rate hike in January 2014, added that a "measured cut" in the foreign exchange lending rate and "a measured hike" in the rate on banks' Turkish lira required reserves will support financial stability.
    The CBRT said the rates applied to banks one-week borrowings from the central bank had been cut by 50 basis points to 4.0 percent for U.S. dollars and to 2.0 percent for euro borrowings. In addition, rates applied on banks' lira required reserves was raised by 50 points.
    The CBRT's decision was largely expected after it provided advance notice on April 14 of its plan to lower the rate charged for foreign currency loans and increase the payments to lenders for their required reserves.
    Turkey's consumer price inflation rate rose slightly to 7.61 percent in March from 7.55 percent the previous month while the core inflation rate fell to 7.5 percent from 8.1 percent.

    The Central Bank of the Republic of Turkey issued the following statement:

"Participating Committee Members
Erdem Başçı (Governor), Ahmet Faruk Aysan, Murat Çetinkaya, Turalay Kenç, Necati Şahin, Abdullah Yavaş, Mehmet Yörükoğlu. 
The Monetary Policy Committee (the Committee) has decided to keep the short term interest rates constant at the following levels:
a) Overnight Interest Rates: Marginal Funding Rate at 10.75 percent, the interest rate on borrowing facilities provided for primary dealers via repo transactions at 10.25 percent, and borrowing rate at 7.25 percent,
b) One-week repo rate at 7.5 percent,
c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate at 0 percent, and lending rate at 12.25 percent.
Loan growth continues at reasonable levels in response to the tight monetary policy stance and macroprudential measures. The favorable developments in the terms of trade and the moderate course of consumer loans contribute to the improvement in the current account balance. External demand remains weak, while domestic demand contributes to growth moderately. The Committee assesses that the implementation of the announced structural reforms would contribute to the potential growth significantly.
The ongoing cautious monetary policy along with prudent fiscal and macroprudential policies are having a favorable impact on inflation, especially inflation excluding energy and food (core inflation indicators). Yet, uncertainty in global markets and elevated food prices necessitates maintaining the cautious stance in monetary policy. Accordingly, the Committee decided to keep the interest rates at current levels. Moreover, it is assessed that a measured cut in the FX deposit lending rates and a measured hike in the partial remuneration rate on Turkish lira required reserves will support financial stability.
Future monetary policy decisions will be conditional on the improvements in the inflation outlook. Inflation expectations, pricing behavior and other factors that affect inflation will be monitored closely and the cautious monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.
It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days."


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