A Further “Simplification” of Tight Turkish Monetary Policy

A Further “Simplification” of Tight Turkish Monetary Policy

June 21, 2016

The corridor between the Turkish overnight lending and borrowing rates was narrowed a third straight time.  After cuts of 25 basis points in March and 50 bps in May, the lending rate was cut by another 50 basis points to 9.0%.  At each of these meetings the borrowing rate of 7.25% and one-week repo rate of 7.5% were held steady.  A released statement today justifies the rate cut by citing a recent drop in inflation and claiming that Turkey is more resilient against external shocks.

Inflation has displayed a marked decline in recent months, mainly due to favorable course of unprocessed food prices and the improvement in the core inflation trend. However, the developments in services inflation and unit labor costs necessitate the maintenance of a tight liquidity stance.

Today’s action, like the earlier moves, was called “measured.”  Prior to those three cuts in the overnight lending rate, policy rates hadn’t changed since January-February 2015 when the one-week repo rate was cut by 75 basis points and the lending rate and borrowing rate were reduced by 50 bps and 25 bps.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

Tags: Central Bank of the Republic of Turkey




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