Turkey’s central bank maintained its policy rates, including the one-week repurchase rate at 7.50 percent, repeating its statement from recent months that its ongoing “cautious” monetary policy is having a favorable impact on inflation but uncertainty in global markets and volatile energy and food prices “makes it necessary to maintain the cautious stance in monetary policy.”
The Central Bank of the Republic of Turkey (CBRT), which has cut its rate by 75 basis points this year, also repeated that “future monetary policy decisions will be conditional on the improvements in the inflation outlook” and the current cautious policy stance will be maintained by keeping a flat yield curve “until there is a significant improvement in the inflation outlook.”
The CBRT’s decision to maintain rates today was widely expected.
The central bank has been fighting to push down inflation that has been fueled by a depreciation of the lira. The lira has been falling for the last two years, hit by a reversal in capital flows ahead of an expected tightening in U.S. monetary policy and worries over the political influence on the central bank and its credibility.
Last week European Union finance minsters were reported to have told Turkey that a tighter policy stance is needed to lower inflation and expressed their displeasure at President Tayyip Erdogan’s pressure on the central bank to cut interest rates.
The CBRT raised its repo rate by 550 basis points in January 2014 in response to capital outflows and a plunge in the lira and has been slowly unwinding this hike despite intense political pressure to cut rates much faster ahead of a June general election.
Turkey’s consumer price inflation rate rose to 7.91 percent in April from 7.61 percent in March, well above the central bank’s 5.0 percent target. The core inflation rate eased to 8.1 percent from 8.9 percent.
The central bank noted that its policy, along with prudent fiscal and macroprudential policies, had have a favorable impact on inflation, especially core inflation that excludes energy and food prices.
“However, recently elevated volatility in the exchange rates has limited the improvement in the core inflation,” the central bank said.
The lira has been strengthening in the last week and was trading at 2.6 to the U.S. dollar today, up from a record low of 2.74 on April 24 but down 10 percent from the start of the year and 17 percent since the start of 2014.
The Central Bank of the Republic of Turkey issued the following statement:
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.