Turkish Central Bank keeps rates unchanged in unexpected move

ANKARA

Turkey’s Central Bank unexpectedly maintained interest rates on Dec. 20, noting that the aggregate demand developments had restrained negative foreign exchange movements. 

“Exchange rate movements due to recently heightened global uncertainty and the increase in oil prices pose upside risks on the inflation outlook. However, the aggregate demand developments restrain these effects. Developments will be closely monitored in order to make a sound assessment regarding the net impact of these factors,” said the bank.
 
The bank left its one-week repo rate unchanged at 8 percent. Analysts had expected a 25 point or 50 point increase in this area amid sharp fluctuations in the Turkish Lira. 

The bank also kept its overnight lending rate at 8.5 percent and borrowing rate at 7.25 percent. A majority of economists had also forecast a hike in the overnight lending rate, which is the upper band of the bank’s interest rate corridor.

The borrowing rate was also kept at 0 percent and the lending rate at 10 percent.

The lira has lost 17 percent of its value against the dollar this year due to the strengthening greenback, various domestic concerns and escalating geopolitical risks. 

The lira fell again on late Dec. 19 after Russia’s ambassador to Turkey, Andrey Karlov, was assassinated in Ankara, but it then rebounded on relief that Moscow and Ankara had adopted a unified tone after the attack.

“Recently released data indicates that the economic activity decelerated in the third quarter before posting a partial recovery for the final quarter. Demand from European Union economies continues to contribute positively to exports. With the supportive measures and incentives provided recently, the recovery in the economic activity is expected to continue at a moderate pace,” said the bank, adding that the implementation of structural reforms would significantly contribute to potential growth.

The bank noted that future monetary policy decisions would be conditional on the inflation outlook.

“Inflation expectations, pricing behavior and other factors affecting inflation will be closely monitored and the cautious monetary policy stance will be maintained,” it added.