Turkish Central Bank Keeps One-Week Repo Rate at 5.75 Percent

Turkey’s central bank kept its one- week repo rate at a record low, maintaining the floor of the interest-rate corridor it’s using to slow inflation while supporting growth.

The benchmark was held at 5.75 percent, where it has been since August, the bank said on its website today. That matched the estimate of all nine economists surveyed by Bloomberg. The Ankara-based bank will release minutes of the monetary policy committee’s meeting within five working days.

Governor Erdem Basci set up the corridor in October, allowing him to vary rates between the benchmark and a ceiling of 12.5 percent. Since mid-January he has made more funding available at the lower rate, even as inflation surged to a three-year high. The cheap money supports efforts by the government to keep the economy growing amid a slowdown in Europe, Turkey’s main export market.

“There is a very limited slowdown in the economic activity which does not necessitate an urgent monetary stimulus,” Sinan Goksen, head of research at Ekspres Invest brokerage in Istanbul, said today in a report. “There is still a risk that the elevated headline inflation jeopardizes pricing behavior.”

Inflation accelerated to 10.6 percent last month. Basci forecast last month that it will slow to 6.5 percent this year, still above the bank’s target of 5 percent.

Investor Expectations

The lira’s rebound from an 18 percent slump in 2011 may help rein in prices. Basci spent about $18 billion of central bank reserves between July and January and also raised bank borrowing costs and cut reserve requirements to prop up the currency. It has climbed more than 8 percent and traded at 1.7477 per dollar at 1 p.m. in Istanbul.

“The recent rally in the lira will likely spark downward revisions to CPI forecast,” encouraging investors to bet on lower interest rates, BNP Paribas SA said today in a report.

The government is targeting economic growth of 4 percent this year, less than half of the 2011 expansion, which was second only to China (CNGDPYOY) among the Group of 20 major economies.

The credit-fueled boom led to a surge in imports that pushed the 12-month current account deficit to a record $78.6 billion, or about 10 percent of economic output, in October. The gap narrowed the following two months, though it’s still about 10 percent of economic output.

To contact the reporter on this story: Emre Peker in Ankara at Epeker2@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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