Bank of Turkey Raises Rates Sharply

At an emergency policy meeting on January 28th, the Central Bank of Turkey decided to raise the benchmark repo rate to 10 percent from 4.5 percent and the overnight lending rate to 12 percent from 7.75 percent reversing years of policy after the lira slid to a record low.

A week earlier, the bank left rates unchanged, but faced heavy market pressure to raise rates as the lira has weakened beyond the bank’s expectations and inflation is well above target of 5 percent.

Excerpt from the Statement by the Central Bank of Turkey:

Recent domestic and external developments are having an adverse impact on risk perceptions, leading to a significant depreciation in the Turkish lira and a pronounced increase in the risk premium. The Central Bank will implement necessary measures at its disposal to contain the negative impact of these developments on inflation and macroeconomic stability. In this respect, the Committee decided to implement a strong monetary tightening and to simplify the operational framework.

Accordingly, one-week repo rate is increased from 4.5 percent to10 percent; the Central Bank liquidity will be provided primarily from one-week repo rate instead of the marginal funding rate in the forthco ming period.

Tight monetary policy stance will be sustained until there is a significant improvement inthe inflation outlook. Under this policy stance, inflation is expected to reach the 5 percent target by mid-2015.

It should be emphasized that any new data or information may lead the Committee to revise its stance.

Bank of Turkey Raises Rates Sharply

Joana Taborda |
1/28/2014 10:39:15 PM