Turkey’s central bank kept all its main interest rates unchanged yesterday and pledged to keep liquidity tight until it sees indications of a permanent slowdown in inflation.
The bank’s monetary policy committee held the late liquidity and one-week repo rates steady at 12.75% and 8%, in line with the median estimate in a Bloomberg survey. The overnight lending and borrowing rates remained at 9.25% and 7.25%.
Although consumer prices have cooled in recent months, annual gains are still holding above 10%, or twice the bank’s official target. Governor Murat Cetinkaya has vowed to keep a tight rein on monetary policy until he’s convinced Turkey isn’t just seeing a temporary slowdown in inflation due to last year’s high readings.
The lira weakened after the decision and was trading 0.3% lower at 3.8068 per dollar at 2.27pm in Istanbul.
In a statement yesterday, the bank maintained its liquidity stance, but added that some key measures of prices weren’t budging.
“Underlying trend indicators display inertia and core inflation remains elevated,” the rates committee said in the statement. “Tight monetary policy stance will be maintained decisively until inflation outlook displays a significant improvement, independent of base effects and temporary factors.”
The increased caution is a sign the bank remains concerned over the outlook for inflation, according to William Jackson, senior economist at Capital Economics in London.
“Barring any fresh falls in the lira, headline inflation should ease a little over the coming months as the impact of previous currency weakness fades,” Jackson said by e-mail. “We expect the central bank’s average cost of liquidity provision - the best measure of overall monetary conditions - to remain at its current level of 12.75% over the course of this year.”
The so-called cost of cash the bank provides to commercial lenders is now two-and-a-half percentage points above the inflation rate. That’s the highest level in at least seven years.
Cetinkaya: Vowing to keep a tight rein on monetary policy.
