Turkish Central Bank keeps main rates unchanged, further tightens to ease inflation

ANKARA

REUTERS photo

The Central Bank has taken another tightening step, hiking the cost of funds from its ‘late liquidity window’ while leaving conventional policy rates on hold to ease the inflation rate. 

The bank kept the overnight lending rate at 9.25 percent.

The one-week repurchasing (repo) rate, regarded as the headline rate, also remained unchanged at 8 percent and the overnight borrowing rate was kept at 7.25 percent.

But the bank raised its late liquidity window lending rate by 75 basis points from 11 percent to 11.75 percent.

“Cost push pressures and the volatility in food prices in recent months have led to a sharp increase in inflation. The significant rise in inflation is expected to continue in the short term due to lagged pass-through and the base effect in food prices. Accordingly, the committee decided to strengthen the monetary tightening in order to contain the deterioration in the inflation outlook,” the bank said in a written statement, announcing the rate decision of its Monetary Policy Committee on its website.

“The Central Bank will continue to use all available instruments in pursuit of the price stability objective. Tight stance in monetary policy will be maintained until inflation outlook displays a significant improvement. Inflation expectations, pricing behavior and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered,” it added. 

Inflation reached double digits in February - the first time in nearly five years - rising by 0.8 percentage point to 10.1 percent.


‘Weak domestic demand’

Recently released data indicated a gradual recovery in economic activity, the bank said. 

“Demand from European Union economies continues to contribute positively to exports, while domestic demand displays a weaker course. With the supportive measures and incentives provided recently, the recovery in the economic activity is expected to continue at a moderate pace,” it said.

“The committee assesses that the implementation of structural reforms would contribute to potential growth significantly,” it added. 


Fed’s decision

The move by the bank follows the U.S. Federal Reserve’s policy-setting Federal Open Market Committee (FOMC) move to raise the key federal funds rate to a range of 0.75-1.0 percent on March 15.

Fed Chair Janet Yellen pointed to growing faith in the economy’s trajectory.

“We have seen the economy progress over the last several months in exactly the way we anticipated,” Yellen said in a press conference following the end of a two-day policy meeting. 

“We have some confidence in the path the economy is on.”

World stock indexes surged to record highs on March 16 while the dollar traded close to a one-month low after the Federal Reserve hiked U.S. interest rates but signaled no pick-up in the pace of tightening.