Bank sticks with rate, rises required reserves

ISTANBUL - Reuters

Central Bank Gov Erdem Başçı follows a flexible interest rate policy. DHA photo

Turkey’s Central Bank thwarted hopes of a cut in one of its main interest rates yesterday but took a further step to raise the amount of lira flushing around the banking sector in aid of supporting growth and building up its hard currency reserves.

The bank kept its main policy rate, the one-week repo rate, at 5.75 percent, its borrowing rate at 5 percent and overnight lending rate at 11.5 percent.

“It looks like a slight easing of policy. The rates were left on hold despite expectations from some of a cut in the overnight rate, said Capital Economics emerging markets economist William Jackson. Economy Minister Zafer Çağlayan said yesterday that he expected the Central Bank to decrease the upper end of the interest rate corridor before the rate decision was disclosed.

The bank said it was retaining flexibility on policy due to global economic uncertainties - language that pointed to concern over a lira rate whose strength is crucial to keeping inflation and a hefty current account deficit under control.

It reiterated that it may make a limited cut in its year-end inflation forecast but said it would also maintain a cautious stance on pricing behavior for some time given inflation that was set to remain above target.
The bank raised the limit of lira required reserves that can be held in forex to 55 percent from 50 percent.