Turkey Holds Rates in `More Hawkish' Statement on Inflation

Updated on
  • Late liquidity, O/N lending, repo rates 12.75%, 9.25%, 8%
  • Central bank governor set to provide 2-year inflation roadmap

Turkey’s central bank held all its key interest rates on Thursday and said even a temporary slowdown in inflation won’t be reason enough to shift to an easing policy. The lira strengthened.

The bank’s monetary policy committee kept the late liquidity and one-week repo rates unchanged at 12.75 percent and 8 percent respectively, in line with all economists in a Bloomberg survey. The overnight lending and borrowing rates remained at 9.25 percent and 7.25 percent.

Though the decision was expected, the bank’s statement contained new wording on the outlook for rates, in particular that it will ignore any “temporary” slowdown in price gains that are expected due to high inflation readings early last year. Inflation was almost 12 percent in 2017, the seventh year that policy makers missed their target, which currently stands at 5 percent.

“This slightly more hawkish message from the central bank may provide the lira with support, although I don’t think it will last if a corrective rebound in the dollar materializes in the coming weeks as the sell-off in the dollar does look overdone,” Piotr Matys, a strategist at Rabobank in London, said by email.

The lira extended gains after the bank’s decision and was trading 0.7 percent higher at 3.7937 per dollar at 2:19 p.m. in Istanbul.

Central bank Governor Murat Cetinkaya is due to provide a road map this month for inflation over the next two years. He has previously blamed food prices, a volatile currency and strong domestic demand for stubbornly high price gains.

— With assistance by Selcan Hacaoglu

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