Turkey holds rates, tight stance until inflation improves

    Turkey's central bank maintained its short term interests rates, including the benchmark one-week repo rate at 8.25 percent, repeating its recent guidance that a "tight monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook."
    The Central Bank of the Republic of Turkey (CBRT), which raised its repo rate by 550 basis points  to 10.0 percent in January and then began cutting it from May through July, said its macro prudential measures and its tight policy stance had a favorable impact on core inflation but elevated food prices were delaying an improvement in the outlook for inflation.
    However, declining oil prices are expected to contribute to lower inflation in 2015, the bank added.
    Turkey's headline inflation rate eased to 8.86 percent in September from 9.54 percent in August and the CBRT has a year-end inflation goal of 7.6 percent.
     Turkey's Gross Domestic Product contracted by 0.5 percent in the second quarter from the first quarter for annual growth of 2.1 percent, down from 4.7 percent in the first quarter.

      The CBRT issued the following statement:

"Participating Committee Members
Erdem Başçı (Governor), Ahmet Faruk Aysan, Murat Çetinkaya, Turalay Kenç, Necati Şahin, Abdullah Yavaş, Mehmet Yörükoğlu. 

The Monetary Policy Committee (the Committee) has decided to keep the short term interest rates constant at the following levels:

a)    Overnight Interest Rates: Marginal Funding Rate at 11.25 percent, the interest rate on borrowing facilities provided for primary dealers via repo transactions at 10.75 percent, and borrowing rate at 7.5 percent,
b)    One-week repo rate at 8.25 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 12.75 percent.

Loan growth continues at reasonable levels in response to the tight monetary policy stance and macroprudential measures. Exports remain supportive of balanced growth in spite of weakening global demand. 

Macroprudential measures taken at the beginning of the year and the tight monetary policy stance continue to have a favorable impact on the core inflation trend. However, elevated food prices delay the improvement in the inflation outlook. Meanwhile, current levels of commodity prices, in particular declining oil prices, are expected to contribute to disinflation foreseen for the next year.       

Inflation expectations, pricing behavior and other factors that affect inflation will be closely monitored and the tight monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.

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."

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