ANKARA
The Central Bank of Turkey has left all its key rates unchanged after a monetary policy meeting, the bank said in a statement Tuesday.
It held one-week repo rate at 7.50 percent, marginal funding rate at 10.75, and borrowing rate at 7.25, the statement said.
The bank pointed out that loan growth kept a reasonable pace in line with the tight monetary policy and macro prudential measures, and thus contributes to the improvement in the current account balance.
The implementation of the announced structural reforms would contribute to the potential growth significantly, the bank said, stressing that external demand remains weak, while domestic demand makes modest growth contributions.
It added that adverse effects of recent movements in the exchange rates, combined with the uncertainty in global markets and volatility in energy and food prices, were the main restraints on the improvement of the inflation outlook.
"Future monetary policy decisions will be conditional on the improvements in the inflation outlook," the bank noted.
"There are few changes in the inflation assessment of the central bank, no changes in policy guidance," Gokce Celik, an economist at Turkey's Finansbank. "Apparently, the monetary committee of the bank turned more optimistic about the headline inflation thanks to the recent drop in food prices."
The committee noted in the statement that annual inflation was expected to decline in the short term, owing to a partial correction in food prices but recent movements in the exchange rates have delayed the improvement in the core indicators.
Celik said that the committee now sounded more concerned about the core inflation.
He noted that contribution of declining food prices was expected to help inflation dip below 6.5 percent at the end of summer just to pick up again to end the year at 7.6 percent.
"Although we think that such an inflation outlook, on its own, would justify tighter monetary conditions, [the central bank's] track record leads us to think that [it] would not opt for higher short-term interest rates unless the inflation outlook deteriorates more dramatically, particularly due to sharp currency weakness," he said.
But Celik did not rule out the possibility of a rate hike from the central bank, emphasizing that the accumulation of uncertainties in the domestic political arena and the possibility of the first rate hike in a decade by the U.S. Federal Reserve, could create sharp capital outflow from emerging economies such as Turkey.
