Turkey Bank Keeps Rates Unchanged With ‘Cautious Stance’

Photographer: Kerem Uzel/Bloomberg

Traffic passes the headquarters of Turkey's central bank in Ankara. Close

Traffic passes the headquarters of Turkey's central bank in Ankara.

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Photographer: Kerem Uzel/Bloomberg

Traffic passes the headquarters of Turkey's central bank in Ankara.

Turkey’s central bank kept its three main interest rates unchanged today, holding off on matching monetary-policy tightening in other developing countries.

Central bank Governor Erdem Basci kept the benchmark one-week repurchase rate at 4.5 percent, abiding by a commitment made last month. He also kept the overnight lending and borrowing rates, which mark the upper and lower ends of his interest-rate corridor, at 7.75 percent and 3.5 percent respectively. The decisions matched the expectations of nine economists surveyed by Bloomberg.

“The committee will maintain the cautious monetary policy stance and implement additional monetary tightening at the appropriate frequency until the medium-term inflation outlook is in line with the medium-term targets,” the central bank said in a statement on its website.

Inflation was 8.2 percent in August, the third straight month it has exceeded 8 percent, compared with the bank’s original 5 percent year-end target.

The lira weakened about 0.2 percent to 2.0094 per dollar at 3:57 p.m. in Istanbul.

Pro-Growth

The central bank in Ankara is steering away from a reliance on interest rates even as Turkish note yields rose the most among emerging markets over the past three months and the lira slumped to a record, fueled by Fed Chairman Ben S. Bernanke’s signal in May that a tapering of stimulus could start this year. Developing nations including Brazil and Indonesia have raised borrowing costs to stem capital outflows and defend their currencies.

“Not sure the market is that convinced that this is a bank particularly focused on countering inflation, or the current-account deficit, but is much more pro-growth oriented,” Timothy Ash, chief emerging-markets economist at Standard Bank Plc in London, said in e-mailed comments after the decision.

The Fed is likely to reduce monthly asset purchases to $75 billion from $85 billion, according to the median estimate in a Bloomberg survey of 34 economists. Policy makers start a two-day meeting today and Bernanke will hold a press conference at 2:30 p.m. in Washington on Sept. 18 following its conclusion.

Basci’s pledge to keep borrowing costs low may enable the economy to gather steam after growth slowed for seven straight quarters through the end of last year. The economy expanded by 4.4 percent in the second quarter, following 2.9 percent growth in the first three months.

Core Inflation

“If the central bank’s concerns for growth continue, the monetary-policy stance will remain as it is,” Inanc Sozer, economic research manager at Odeabank AS in Istanbul, said in e-mailed comments yesterday.

The central bank said core inflation, which strips out energy, food, beverages, tobacco and gold, may remain above the inflation target “for some time” after accelerating to 6.37 percent last month. The bank has in the past cited the core index as a better indicator of changing pricing tendencies than the general index.

The bank is providing forward guidance to investors on potentially higher core-inflation readings to preempt the shock, said Nihan Ziya-Erdem, an economist at Turkiye Garanti Bankasi in Istanbul.

“This is about preparing the market,” she said. “The bank is trying to ensure inflation figures don’t hurt the market sentiment going forward.”

To contact the reporter on this story: Onur Ant in Ankara at oant@bloomberg.net

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

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