Economy

Turkish Central Bank holds key interest rates steady

Repo rate left unchanged at 7.50 percent as expected after being cut seven times since March 2016

Bahattin Gonultas  | 20.10.2016 - Update : 20.10.2016
Turkish Central Bank holds key interest rates steady

Ankara

ANKARA

Turkey’s Central Bank on Thursday held key interest rates at their current levels after reducing its main interest rate over the last seven months.

The one-week repo rate would be kept at 7.50 percent while the borrowing rate would remain at 7.25 percent, in line with expectations, the body said. The overnight lending rate would stay at 8.25 percent, according to the bank’s Monetary Policy Committee.

"Recently released data and indicators regarding the third-quarter display a deceleration in economic activity. Reduced tightness in monetary conditions and the recent macroprudential measures support the overall financial conditions," read a statement released on Thursday.

The bank's move came after Turkish presidential economic advisor Yigit Bulut said earlier this week the central bank could pause a cycle of interest-rate cuts if warranted by economic conditions.

The body also said on Thursday: "The lagged effects of the terms of trade developments and the moderate course of consumer loans limit the widening in the current account balance driven by the decline in tourism revenues.

“Demand from the EU economies continues to contribute positively to exports. With the supportive measures and incentives provided recently, domestic demand is expected to recover starting from the final quarter."

The slowdown in aggregate demand contributed to the gradual fall in core inflation, the bank said. "The Committee assesses that the implementation of the structural reforms would contribute to potential growth significantly."

"Yet, the recent developments in exchange rates and other cost factors restrain the improvement in inflation outlook and thus necessitate the maintenance of a cautious monetary policy stance," it added.

The bank said its future monetary policy decisions would depend on the inflation outlook.

After the central bank decision, the Turkish lira recovered against the U.S. dollar to 3.0516 from 3.0730 lira, up 0.70 percent.

Market welcome

Erol Gurcan, research specialist at Gedik Investment, said the central bank's decision to hold the benchmark interest rate at 7.50 percent and overnight rate at 8.25 percent had been welcomed by the markets.

"The central bank cut the interest rates between March and September of this year. This decision will have a positive impact to balance the TL/USD exchange rate, and the country's inflation rate as well," said Gurcan.

Gurcan also said the central bank's steps to simplify monetary policy had been conducted since August 2015 and added: "Almost all steps, except offering a single interest rate, have been completed. The central bank will continue the process and probably conclude it by the end of this year.”

"The lira weakness and the developments of other cost elements limited the improvement in the inflation outlook and required the protection of the cautious stance in the monetary policy," he said

Enver Erkan, an analyst at Kapital FX, told Anadolu Agency: "Under these assessments, the bank's monetary policy decided to hold the rates and indicated that future decisions will be shaped according to the data."

Erkan also added that markets had welcomed the bank’s decision.

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