It is envisaged that factors affecting inflation adversely will keep inflation indicators considerably above the 5% target for a while, the Central Bank said in the minutes of the latest monetary policy committee meeting, citing food prices, tax adjustments, and weak TRY.
On February 18, he Central Bank kept its interest rates unchanged as widely expected after last month’s aggressive rate hike. The Bank kept one-week repo rate at 10%, overnight lending rate at 12%, and borrowing rate at 8%.
Recent and lingering external uncertainties coupled with the elevated domestic uncertainties caused additional exchange rate movements, which weighed on the risk of inflation exceeding the target for a protracted period, the Bank explained. Moreover, the recent tax adjustments and the persisting unfavourable course of food prices also exacerbated the deterioration in the inflation outlook, the minutes read.
The current policy stance will be enough to anchor inflation expectations, tight monetary policy stance will be sustained until there is a significant improvement in the inflation outlook and the liquidity policy may be tightened further if deemed necessary, the Bank said.
Due to tight monetary policy, macroprudential measures and weak capital flows, credit growth has been slowing gradually that could support the current account (CA) rebalancing, according to the Bank which expects the CA deficit to display a significant improvement in 2014. The recent uncertainty might cause private demand to weaken in the first quarter, the Bank also said.
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