The Central Bank of the Republic of Turkey (CBRT) cut the overnight marginal funding rate by another 50 basis points to 9.50 percent and the lending rate at its late liquidity window by 50 basis points to 11.0 percent.
Since March the overnight funding rate has been cut by 125 basis points in response to what the CBRT described as a "marked decline" in inflation due to lower unprocessed food prices. The benchmark repo rate has been steady at 7.50 percent since February 2015.
The central bank reiterated its recent guidance that "future monetary policy decisions will be conditional on the inflation outlook" and in light of inflation expectations, prices and other factors, a tight monetary policy stance will be maintained.
Turkey's headline inflation rate eased to 6.57 percent in April from 7.46 percent in March while core inflation eased to 9.3 percent, down from 9.5 percent as both numbers remain well above the bank's target of 5.0 percent.
In its latest inflation report, the CBRT maintained its outlook for inflation to reach 7.5 percent by the end of this year and 6 percent by the end of 2017, reaching 5 percent in 2018.
In contrast to its statement in April, when the central bank said global volatility had declined, the central bank today said "global volatility has increased to some extent," and the tight monetary policy stance, cautious macroeconomic policies helped increase the economy's resilience to shocks.
The Central Bank of the Republic of Turkey released the following statement:
Participating Committee Members
Murat Çetinkaya (Governor), Ahmet Faruk Aysan, Erkan Kilimci, Necati Şahin, Abdullah Yavaş, Mehmet Yörükoğlu.
The Monetary Policy Committee (the Committee) has decided to set the short term interest rates as follows:
a) Overnight Interest Rates: Marginal Funding Rate has been reduced from 10 percent to 9.50 percent, and borrowing rate has been kept at 7.25 percent,
b) One-week repo rate has been kept at 7.5 percent,
c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate has been kept at 0 percent, and lending rate has been reduced from 11.50 percent to 11 percent.
b) One-week repo rate has been kept at 7.5 percent,
c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate has been kept at 0 percent, and lending rate has been reduced from 11.50 percent to 11 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. While domestic demand continues to have a positive impact on growth, demand from the European Union economies continues to support exports. Accordingly economic activity displays a moderate and stable course of growth. The Committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly.
Recently, the global volatility has increased to some extent. The Committee assesses that the tight monetary policy stance, the cautious macroprudential policies and the effective use of the policy instruments laid out in the road map published in August 2015 increase the resilience of the economy against shocks. In this respect, the Committee decided to take a measured step towards simplification.
Recently, inflation has displayed a marked decline, mainly due to unprocessed food prices. However, improvement in the underlying core inflation trend remains limited, necessitating the maintenance of a tight liquidity stance.
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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