Turkish Central Bank says tight monetary policy will continue until inflation outlook improves.

By bne IntelliNews January 30, 2014

Tight monetary policy stance will be sustained until there is a significant improvement in the inflation outlook and if deemed necessary, liquidity policy may be tightened further in order to invert the slope of the yield curve, the Central Bank said on Thursday in the minutes of the emergency monetary policy committee (MPC) meeting earlier this week when it delivered more-than-expected rate hikes.

“The MPC decided to implement a strong monetary tightening and to simplify the operational framework. In this respect, (i) one-week repo rate is increased from 4.5% to 10%, (ii) the Central Bank liquidity will be provided primarily from one-week repo rate instead of the marginal funding rate in the forthcoming period”, the Bank said.

The Bank believes tightening monetary policy under current circumstances will not only contribute to price stability, but also support the macroeconomic stability through a reduction in the exchange rate uncertainty and risk perceptions.

The Central Bank’s aggressive rate hike proved ineffective as TRY weakened against USD on Thursday.

The Central Bank said it would not tolerate any deterioration in the price stability and in order to prevent a deterioration in the inflation expectation and the overall pricing behaviour, it decided that it would be appropriate to deliver a strong and front-loaded monetary tightening. The Bank expects current policy stance to be enough to anchor inflation expectations. January inflation may exceed the market expectations (1.06% m/m, Central Bank Expectations Survey) but tight policy stance should prevent any deterioration in medium term inflation expectations, according to the Bank. The Bank expects underlying inflation to trend downside in subsequent months.

Central Bank Policy Rates

 

Before 29.01.2013

After 29.01.2013

One-week repo (policy rate)

4.50%

10.00%

Overnight Marginal Funding

7.75%

12.00%

Overnight Borrowing

3.50%

8.00%

Overnight Borrowing for Primary Dealers

6.75%

11.50%

Late Liquidity Borrowing

0.00%

0.00%

Late Liquidity Lending

10.25%

15.00%

Source: central bank

   

Related Articles

Turkish lira’s chronic weakness credit negative for Turkey’s sovereign rating says Moody’s

The chronic weakness of the Turkish lira (TRY) is credit negative for Turkey’s sovereign debt rating and poses ... more

Turkey moves towards extending 21-month-old state of emergency

A senior government official has signalled that Turkey may once again extend its state of emergency. “The need for an extension of the state of emergency is apparent. If parliament approves it, ... more

Russia bringing forward delivery to Turkey of S-400 missile system by six months says Ankara official

The scheduled delivery of Russian S-400 surface-to-air missile batteries to Turkey has been brought forward to July 2019 from the first quarter of 2020, the Turkish undersecretary for defence ... more

Dismiss