Turkey Hikes Rates For 1st Time Since 2014

The Central Bank of Turkey raised its benchmark one-week repo rate by a higher-than-expected 50bps to 8 percent on November 24th and its overnight lending rate by 25 bps to 8.5 percent, while it held its borrowing rate at 7.25 percent. It was the first policy tightening since January 2014, after the lira fell to a record low amid a slowdown in economic activity. The lira has already lost around 14 percent of its value against the dollar this year on stronger dollar and concerns over the aftermath of July's failed coup. Inflation was last recorded at 7.2 percent in October, well above central bank's 5 percent target.

Recently released data indicate a deceleration in the economic activity for the third quarter. Meanwhile, demand from the European Union economies continues to contribute positively to exports. With the supportive measures and incentives provided recently, economic activity is expected to recover starting from the final quarter. The Committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly.

The slowdown in aggregate demand contributes to the fall in inflation. Yet, exchange rate movements due to recently heightened global uncertainty and volatility pose upside risks on the inflation outlook. The Committee decided to implement monetary tightening to contain adverse impact of these developments on expectations and the pricing behavior. 

Future monetary policy decisions will 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 should be emphasized that any new data or information may lead the Committee to revise its stance.

Turkey Hikes Rates For 1st Time Since 2014

Central Bank of Turkey | Joana Ferreira | joana.ferreira@tradingeconomics.com
11/24/2016 11:30:12 AM