Turkey's central bank keeps interest rates unchanged

By Muhammed Ali Gurtas

ANKARA

The Central Bank of the Republic of Turkey (CBRT) on Wednesday announced its Monetary Policy Committee (MPC) decision to keep short-term interest rates constant.

The bank's policy rate -- the one-week repo rate -- was held at 8 percent, the CBRT said in a statement.

The MPC also kept the marginal funding and overnight borrowing rates constant at 9.25 and 7.25 percent, respectively.

According to the bank's statement, the late liquidity window interest rates -- between 4 p.m. and 5 p.m. -- remained steady with borrowing rate at 0 percent and lending rate at 12.25 percent.

Wednesday's MPC meeting is the second of eight meetings scheduled for the year. At the first meeting on Jan. 18, the CBRT kept the interest rates unchanged as well.

According to the bank's program, the next MPC meetings will be held on Apr. 25, June 7, July 24, Sept. 13, Oct. 25, and Dec. 13.

"Current elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior," the bank said. "Underlying trend indicators display inertia and the core inflation remains elevated."

According to the country's statistical authority TurkStat, last month consumer prices in Turkey rose 10.26 percent year-on-year, marking a slight decrease of 0.09 percentage points compared with figure from January.

Last year, the lowest annual inflation was seen in January with 9.22 percent while the highest annual rise in consumer prices since 2005 was recorded in November with 12.98 percent.

Over the past 13 years, from 2005 to 2017, the minimum annual inflation was observed in March 2011 with 3.99 percent.

Price stability objective

The CBRT said it will continue to use all available instruments in pursuit of the price stability objective.

"Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement, independent of base effects and temporary factors, and becomes consistent with the targets," the bank added.

Ziraat Bank’s economist Bora Tamer Yilmaz told Anadolu Agency that the CBRT reiterated its resolve regarding tight monetary policy stance by emphasizing the inertia in the inflation trend.

"Although headline data came down recently both in consumer and producer prices the trend still misses clarity regarding its direction," he said, adding: "With inflation expectations still elevated, the central bank may overlook volatility in headline unless an improvement starts in the trend of the inflation."

"The inertia may delay improvement in inflation expectations, eventually causing the central bank to keep its tight stance for a prolonged duration," he noted.

Erol Gurcan, investment advisory manager at Gedik Investment, also told Anadolu Agency that there is no hike pressure from inflation or currency outlook -- at least for now.

"The CBRT interest rates levels are sufficient enough to keep its tight stance in monetary policy with the declining in CPI [consumer prices index] due to the base effects", Gurcan said.

He remarked that Turkey’s annual CPI slowed down from last December (11.92 percent) to February (10.26 percent) due to the positive base effect.

"The limited improvement of the inflation could continue for a few months and high single-digit level CPI is still achievable in the first half of this year," he said, noting that the figures would be mostly at low double-digit levels until the fourth quarter, then to start to drop to single digits.