Turkey Promises Orthodox Policy at Private Central Bank Meeting

Turkey’s central bank promised economists that its policy is becoming simpler and more predictable, according to two people who attended a private meeting in Ankara today.

Deputy Governor Mehmet Yorukoglu and Abdullah Yavas, a member of the monetary policy committee, told the economists that the bank is moving toward a more orthodox policy where the benchmark one-week repurchase rate will be the main instrument for funding banks, according to Bora Tamer Yilmaz of Ziraat Investment and Inanc Sozer of Odeabank AS, who were at the meeting.

“Bank officials said that they wanted their policies to be viewed as more orthodox and more predictable,” Yilmaz said.

Turkey’s central bank developed an interest-rate corridor since 2010 that allowed it to vary monetary conditions on a daily basis. Critics said the system was over-complicated, and called it a way of circumventing political opposition to higher rates. The bank reversed course last month, raising all its main rates at an emergency meeting as it sought to stem a plunge in the lira.

The bank will keep policy tight until it’s confident that inflation, which was 7.8 percent last month, is slowing toward the target of 5 percent by mid-2015, Sozer said.

The move toward orthodoxy suggests the rates corridor will be symmetrical, with the overnight lending and borrowing rates that mark its boundary at an equal distance from the benchmark, Yilmaz said.

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