Turkey maintains rate but no longer sees need to tighten

April 25, 2019

By CentralBankNews.info

Turkey’s central bank left its policy rate steady at 24.0 percent and its commitment to maintain a tight monetary policy stance until there is a significant improvement in the outlook for inflation but also turned slightly less hawkish by omitting any reference to further monetary tightening.
As in March, the Central Bank of the Republic of Turkey (CBRT) said there had been some improvement in inflation indicators but higher food and import prices along with high inflation expectations continue to pose risks to price stability.
“Accordingly, the Committee has decided to maintain the tight monetary policy stance until inflation outlook displays a significant improvement,” the bank’s monetary policy committee said, reiterating its commitment to keep interest rates in order to push inflation down toward its target of 5.0 percent.
“Factors affecting inflation will be closely monitored and monetary stance will be determined to keep inflation in line with the targeted path,” the central bank said, dropping its previous reference to closely monitoring factors that affect inflation and “if needed, further monetary tightening will be delivered.”
It is the first major change in CBRT’s policy stance since September 2018 when it raised its key rate by 6.25 percentage points in the wake of rate hikes in May and June, bringing the total tightening in 2018 to 16 percentage points.
The reaction of financial markets was swift, with the lira dropping 1.3 percent to 5.98 to the U.S. dollar to be down 11.7 percent this year and 36.4 percent since the start of 2018.
In 2018 the lira fell 28 percent against the dollar, pushing up inflation, dampening sentiment and making it more expensive for companies and banks to service their debt.
The change in tone by CBRT is bound to reinforce investors’ concern over the independence of the central bank amid a steady barrage of criticism over its high interest rates by Turkish President Recep Tayyip Erdogan.
Turkey’s headline inflation rate rose slightly to 19.71 percent in March from 19.67 percent in February and a poll by Reuters earlier this month showed inflation is only expected to drop to 15.5 percent by the end of this year, in line with government forecasts.
Turkey’s economy is in recession after contracting by 2.4 percent and 1.6 percent, respectively, in the third and fourth quarters of 2018 and the International Monetary Fund has forecast a 2.5 percent contraction this year and 2.5 percent growth in 2020.

Central Bank of the Republic of Turkey released the following decision by its monetary policy committee:

Participating Committee Members

Murat Çetinkaya (Governor), Ömer Duman, Uğur Namık Küçük, Emrah Şener, Murat Uysal, Abdullah Yavaş.
The Monetary Policy Committee (the Committee) has decided to keep the policy rate (one-week repo auction rate) constant at 24 percent.
Recently released data show that rebalancing trend in the economy has continued. External demand maintains its relative strength while economic activity displays a slow pace, partly due to tight financial conditions. Current account balance is expected to maintain its improving trend.
Developments in domestic demand conditions have led to some improvement in inflation indicators. Yet, higher food and import prices and the elevated course of inflation expectations point to continued risks to price stability. Accordingly, the Committee has decided to maintain the tight monetary policy stance until inflation outlook displays a significant improvement.
The Central Bank will continue to use all available instruments in pursuit of the price stability objective. Factors affecting inflation will be closely monitored and monetary stance will be determined to keep inflation in line with the targeted path.
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.”

    www.CentralBankNews.info

 


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