As widely expected, the Central Bank of Turkey kept key interest rates on hold on Tuesday after it delivered aggressive hikes in January. The bank left its one-week repo rate unchanged at 10%, overnight lending rate at 12%, and its overnight borrowing rate at 8%.
The Committee highlighted the upside risks on the inflation outlook and assessed that the strong and frontloaded monetary tightening delivered at the January interim meeting has contained the adverse impact of such risks on the medium term inflation expectations, the Bank said in a statement released after the Monetary Policy Committee meeting.
The Bank expects inflation to increase until June, partly reflecting base effects. Against this backdrop, inflation expectations and pricing behaviour will be closely monitored and the tight monetary policy stance will be maintained until there is a significant improvement in the inflation outlook, the Bank said.
Loan growth continues to slow down in response to the tight monetary policy stance, recent macroprudential measures, and weak capital flows, while Q1 data indicate some deceleration in private final domestic demand, according to the Bank.
With the help of the recovery in foreign demand, the contribution of net exports to economic growth is expected to increase and such a demand composition will support disinflation and lead to a significant improvement in the current account deficit in 2014, the Bank also said.
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