Tuesday, November 24, 2015

Turkey maintains rates, changes conditional on inflation

   Turkey's central bank kept its benchmark one-week repo rate steady at 7.50 percent, once again defying fresh calls by the president for lower rates, and repeated its guidance that "future monetary policy decisions will be conditional on the inflation outlook."
    The Central Bank of the Republic of Turkey (CBRT) also confirmed its view from October that a tight monetary policy stance will be maintained in light of inflation expectations, the behavior of prices and "the course of other factors" affecting inflation, a likely reference to how the exchange rate of the lira may be affected by an expected change in U.S. monetary policy.
    On Nov. 15 Turkish President Tayyip Erdogan, whose party has regained its single-party majority, renewed his call for the central bank to cut rates but investors appeared to shrug off any jitters about the central bank's independence judging from the reaction of the lira.
   The lira has been depreciating since the so-called "taper tantrum" in May 2013 but has been relatively stable since late September and firmed slightly since the Nov. 1 elections, helping ease pressure on inflation.
    The lira was trading at 2.86 to the U.S. dollar today, up from below 3 in late September, but still down 18 percent since the beginning of the year.
    Turkey's headline inflation rate eased to 7.58 percent in October from 7.95 percent in September and the CBRT said energy prices had a favorable effect on inflation while "cumulative exchange rate movements delay the improvement in the core indicators."
    Core inflation, which excludes food prices, rose to 9.3 percent in October from 8.7 percent.
    Last month the central bank raised its inflation forecasts in its quarterly inflation report, and the central bank president was quoted as saying that it was not totally incorrect that the CBRT may raise rates if the U.S. Federal Reserve does to avoid capital outflows from investors seeking higher yield.
    The central bank raised its end-2015 inflation forecast to a midpoint of 7.9 percent from 6.9 percent in its previous report.
   For the end of 2016 the CBRT forecast inflation at a midpoint of 6.5 percent, up from 5.5 percent.

   The Central Bank of the Republic of Turkey issued the following statement:
"Participating Committee Members
Erdem Başçı (Governor), 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, 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.
Annual loan growth continues at reasonable rates 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. The composition of growth has shifted towards net exports with the support of rising demand from the European Union economies. The Committee assesses that the implementation of the announced structural reforms would contribute to the potential growth significantly.
Energy price developments affect inflation favorably, while cumulative exchange rate movements delay the improvement in the core indicators. Considering the impact of the uncertainty in global markets on inflation expectations and taking into account the volatility in energy and unprocessed food prices, the Committee stated that the tight liquidity stance will be maintained as long as deemed necessary.
Future monetary policy decisions will be conditional on the inflation outlook. Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the tight monetary policy stance will be maintained.
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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