Turkey Central Bank holds rates last week and no tightening until inflation on target

Turkey's central bank held its policy rates steady but said it would "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 of the Republic of Turkey (CBRT) has been tightening its policy since May when its lira currency started to weaken as the strong inflow of capital began to reverse as in some other major emerging markets, such as India, Brazil and Indonesia.
    But while its has kept its policy rate steady at 4.50 percent since May, it has raised the overnight lending rate, the ceiling in its interest rate corridor, most recently by 50 basis points in August to 7.75 percent prevent a decline in the currency from fueling inflation.
    "Inflation is expected to fall further in the forthcoming period," the central bank said, but added that "core inflation indicators are likely to hover above the inflation target for some time due to the exchange rate volatility observed during the recent months."
   Turkey's headline inflation rate eased to 8.17 percent in August from 8.88 percent in July and 8.3 percent in July, above the central bank's 5.0 percent target.

     While the lira currency fell sharply in May and then again in August, it has strengthened since Sept. 5. From early May through Sept. 5 the lira depreciated by 13.5 percent against the U.S. dollar, falling to 2.07 per dollar, but since then it has strengthened, trading at 2.0 today.
    Last week the central bank governor said in Geneva, Switzerland, that the lira exchange rate would be 1.92 to the dollar by the end of the year, defending his earlier prediction.
    The central bank said today that it would continue to adjust the composition of lira liquidity and that "in order to contain the repercussions of uncertainty in global monetary policies on the domestic economy, increasing the predictability of the Turkish lira liquidity policy is deemed important."
    Domestic demand and exports are continuing to grow at a moderate pace, the central bank said, adding that weak capital flows, the cautious monetary policy stance and other macroprudential measures should gradually bring down loan rates to "more reasonable levels."

    "Accordingly, a gradual decline in the current account deficit, excluding gold trade, is expected to continue," the central bank said.
    Turkey's Gross Domestic Product rose by 2.1. percent in the second quarter from the first quarter for annual growth of 4.4 percent, up from 2.9 percent in the first.
    The current account deficit rose to $5.786 billion in July from $4.626 billion in June but down from a recent high of $8.209 billion in April.

Turkey holds rates, to tighten until inflation on target - Central Bank News

for more details log on to Central Bank of the Republic of Turkey website : http://www.tcmb.gov.tr/yeni/eng/ 

Turkey Central Bank raises lending rate 50 bps, will tighten if needed

Turkey's central bank maintained its benchmark one-week repo rate at 4.5 percent but raised its overnight lending rate by 50 basis points to 7.75 percent and said "additional monetary tightening will be implemented whenever needed" until the inflation outlook is in line with medium-term targets.
    
The Central Bank of the Republic of Turkey (CBRT), which in July raised its overnight lending rate by 75 basis points and also said it would tighten more if needed, kept the overnight borrowing rate steady at  3.5 percent along with the borrowing rate for primary dealers at 6.75 percent.
    The increase in the overnight lending rate, the ceiling in its interest rate corridor, was expected as the central bank's governor said last month the repo rate would be maintained for a long time while the interest rate corridor would continue to be adjusted as lire volatility posed a threat to inflation. The governor also raised the inflation forecast.
    The central said today that "due to ongoing uncertainties regarding the global economy and the volatility in capital flows, it is important to maintain the flexibility of the liquidity management" and it would continue to adjust the composition of lira provided to the market.

   Turkey's lira has been hard hit from the change in global risk assessments as investors prepare for a reduction in quantitative easing by the U.S. Federal Reserve, and the central bank said the weakness in capital flows that started in May had continued.
    "The Committee has indicated that these developments along with a more cautious monetary policy will bring the credit growth rates gradually to more reasonable levels," the CBRT said.
    Turkey needs to attract foreign investment to finance its current account deficit and higher interest rates tends to support the currency and thus an inflow of foreign funds. In recent years the central bank worked to stem the inflow of capital, which stoked domestic asset prices and inflation, but since May capital has been flowing out and the central bank has had to reverse policy.
     The lira has fallen 8.5 percent this year against the U.S. dollar and was quoted at 1.949 to the dollar today. Last month the Turkish central bank raised its inflation forecast for the end of this year to 6.2 percent and for the end of 2014 to 5 percent.
   
 In July Turkey's inflation rate rose to 8.9 percent from June's 8.3 percent, the highest rate in 10 months, and well above the central bank's 5.0 percent target. A depreciation in the lira's exchange rate tends to raise import prices and thus inflation.
    The central bank said it expects inflation to begin to ease from August.
    Turkey's current account deficit eased to US$4.4 billion in June from $7.3 billion in May and $8.3 billion in April. Last year the deficit amounted to 6.1 percent of Gross Domestic Product.
    The central bank said domestic demand and exports had shown moderate growth and the improvement in the current account continues, excluding gold trading.
    "The current policy framework, with the additional support from recent macroprudential policies, will continue to improve the current account balance," the CBRT said.
     Turkey's GDP expanded by 1.6 percent in the first quarter from the fourth for annual growth of 3.0 percent, up from 1.4 percent.
  
  Last month the central bank said growth this year may fall below a forecast 4 percent. A recent survey of economists, showed expectations for growth this year of 3.5 percent,  inflation at 7.3 percent and the lira-dollar rate at 1.93 at the end of the year.
    The central bank cut its repo rate earlier this year and shifted its interest rate corridor down to boost economic activity but since May it has been tightening policy to protect the lira due to an outflow of capital following news of a winding down of U.S. asset purchases and nervousness over the impact of demonstrations against the government

Turkey raises lending rate 50 bps, will tighten if needed - Central Bank News

for more detail log on to Central Bank of the Republic of Turkey website : http://www.tcmb.gov.tr/yeni/eng/