Turkey’s Central Bank to simplify interest rate policy

ANKARA – Anadolu Agency

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The Central Bank will switch to a single interest rate policy from the current “interest rate corridor” and will reduce its number of Monetary Policy Committee meetings from 12 to eight per year, Deputy Prime Minister Mehmet Şimşek has told state-run Anadolu Agency.        

The Central Bank has decided to largely simplify its complex monetary policy, Şimşek said on Nov. 13. 

“There will only be a single-rate policy that does not change very often. In this sense, the four-week cycle [monthly decision about interest rates] is thought to be too short, because the Bank wants to see the general trend,” he added.         

“Now that the Bank is going to use a single-rate policy, we actually think this is the next step in simplification. In line with the rate policy, the Bank will reduce the number of Monetary Policy Committee meetings in order to act with more information.”

According to Şimşek, the Central Bank will be able to focus more on its main task and will have more opportunities to look at more data with the new single-rate policy.

“It will give clearer and simpler messages to the market with more data,” he said.

The Central Bank will continue to directly employ its monetary policy instruments to ensure price stability, Şimşek added.        

The move to cut the number of Monetary Policy Committee meetings is intended to give the Central Bank more time to formulate effective monetary policy responses, Şimşek said.  
      
“With a new legal arrangement, the number of the Bank’s interest rate-determining monthly meetings will be reduced to at least eight times a year,” he said.        

“Reducing the number of meetings will give more time to the Bank to establish an effective monetary policy response based on analyses that reflect key trends and are free of short-term volatility,” he added. 

Şimşek said this is in line with international practice like U.S. Federal Open Market Committee meetings.

“For example, in nine of 14 developed countries, such meetings are held eight times a year. South Korea and Israel have reduced their annual number of such meetings to eight,” he said.      

Turkey’s Central Bank uses a complex system of multiple rates - known as an interest rate “corridor” - to set policy.        

On Oct. 20, the Bank held key interest rates at their current levels after gradually reducing the main interest rate over the last seven months. It kept its one-week repo rate at 7.50 percent and the borrowing rate at 7.25 percent, in line with expectations.