Turkey holds rates, guidance omits flat yield curve

Turkey's central bank left its benchmark one-week repo rate unchanged at 7.50 percent, as expected, and confirmed the main point of its recent guidance that "future monetary policy decisions will be conditional on the inflation outlook."
But the Central Bank of the Republic of Turkey (CBRT), which has cut its rate by 75 basis points this year, also tweaked its guidance slightly by dropping previous references to keeping a flat yield curve until there is a significant improvement in the inflation outlook.
But the CBRT still confirmed that it would continue to maintain tight liquidity in light of uncertainty in domestic and global financial markets and volatile energy and food prices.
Although the decline in energy prices has impacted inflation in a favorable way, the CBRT repeated that exchange rate movements had delayed an improvement in core inflation.
Turkey's inflation rate rose to 7.95 percent in September from 7.14 percent in August while the Turkish lira has strengthened in the last month following steady depreciation since the "taper tantrum" in May 2013 when many emerging market currencies were hit by capital outflows after the U.S. Federal Reserve said it was considering scaling back asset purchases.
The lira was trading at close to 2.90 to the U.S. dollar today, up from lows around 3 to the dollar in late September but down 20 percent since the start of the year.
While Turkey's economy has been hit by weak demand for its exports, the central bank said domestic demand is continuing to contribute to growth "moderately" while exports should start to improve as demand from the European Union strengthens.
Turkey's Gross Domestic Product expanded by 1.3 percent in the second quarter from the first quarter for annual growth of 3.8 percent, up from 2.5 percent.



The Central Bank of the Republic of Turkey issued the following statement:

"Participating Committee Members
Erdem Basç? (Governor), Ahmet Faruk Aysan, Murat Çetinkaya, Turalay Kenç, Necati Sahin, Abdullah Yavas, Mehmet Yörükoglu.
The Monetary Policy Committee (the Committee) has decided to keep the short term interest rates constant at the following levels:
a) Overnight Interest Rates: Marginal Funding Rate at 10.75 percent, and borrowing rate at 7.25 percent,
b) One-week repo rate at 7.5 percent,
c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate at 0 percent, and lending rate at 12.25 percent.
Annual loan growth continues at reasonable rates in response to the tight monetary policy stance and macroprudential measures. The favorable developments in the terms of trade and the moderate course of consumer loans contribute to the improvement in the current account balance. External demand remained weak in the first half of the year, while domestic demand contributed to growth moderately. The composition of growth is expected to shift gradually towards net exports in upcoming periods with the support of rising demand from the European Union economies. The Committee assesses that the implementation of the announced structural reforms would contribute to the potential growth significantly.
Energy price developments affect inflation favorably, while exchange rate movements delay the improvement in the core indicators. Considering the impact of the uncertainty in domestic and global markets on inflation expectations and taking into account the volatility in energy and food prices, the Committee decided to maintain the tight liquidity stance as long as deemed necessary.
Future monetary policy decisions will be conditional on the inflation outlook. Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the tight monetary policy stance will be maintained.
It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days."
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Turkey holds rates, guidance omits flat yield curve

Turkey holds rates, tightens liquidity, ready for Fed move

Turkey's central bank left its key interest rates unchanged, including the one-week repo rate at 7.50 percent, but said it would tighten liquidity "as long as deemed necessary" in light of the delay in reducing inflation and the "uncertainty in domestic and global markets and the volatility in energy and food prices."
The Central Bank of the Republic of Turkey (CBRT), which has cut its rate by 75 basis points this year as it slowly unwinds a 550 point emergency rate hike in January 2014, added that its board had also discussed a road map and strategy to be implemented before and after the normalization of global monetary policy, a reference to expected rate increases by the U.S. Federal Reserve.
The CBRT was expected to keep its benchmark rates steady and shift toward a more conventional monetary policy with a single benchmark rate instead of the current system in which overnight rates in a corridor can be varied daily in response to the lira's exchange rate.
The road map, which was published today, sets out various measures for how the CBRT will adjust its liquidity management and foreign exchange policy, including how it will make the interest rate corridor "more symmetric around one-week repo interest rate and the width of the corridor will be narrowed," starting with the normalization of global monetary policies.
The road map also details measures to be undertaken "before normalization," including changes to the funding system and a more flexible selling of foreign exchange to reduce volatility, and changes to reserve ratios for both foreign exchange liabilities and lira liabilities.
But while the CBRT will tighten liquidity and thus support the lira, it also repeated its recent guidance that "future monetary policy decisions will be conditional on the improvements in the inflation outlook" and a "cautious monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook."
Turkey's headline inflation rate eased to 6.81 percent in July from 7.2 percent in June, helped by lower prices of energy and processed food, but the CBRT added that exchange rate movements had delayed the improvement in core indicators, with core inflation at 7.6 percent, down from 7.9 percent.
Like most other emerging market currencies, the lira has been depreciating against the U.S. dollar since May 2014 and since July this year it has fallen continuously. Today it fell further to 2.90 to the dollar from 2.87 yesterday to be down almost 20 percent this year.


The Central Bank of the Republic of Turkey issued the following statement:

"Participating Committee Members
Erdem Basç? (Governor), Ahmet Faruk Aysan, Murat Çetinkaya, Turalay Kenç, Necati Sahin, Abdullah Yavas, Mehmet Yörükoglu.


The Monetary Policy Committee (the Committee) has decided to keep the short term interest rates constant at the following levels:


a) Overnight Interest Rates: Marginal Funding Rate at 10.75 percent, the interest rate on borrowing facilities provided for primary dealers via repo transactions at 10.25 percent, and borrowing rate at 7.25 percent,
b) One-week repo rate at 7.5 percent,
c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate at 0 percent, and lending rate at 12.25 percent.


Loan growth continues at reasonable levels in response to the tight monetary policy stance and macroprudential measures. The favorable developments in the terms of trade and the moderate course of consumer loans contribute to the improvement in the current account balance. External demand remains weak, while domestic demand contributes to growth moderately. The Committee assesses that the implementation of the announced structural reforms would contribute to the potential growth significantly.
Processed food and energy price developments affect inflation favorably in the short run, while exchange rate movements delay the improvement in the core indicators. Considering this delay and taking into account the uncertainty in domestic and global markets and the volatility in energy and food prices, the Committee decided to implement a tighter liquidity policy as long as deemed necessary. Moreover, the Committee also discussed the roadmap to be implemented before and after global monetary policy normalization and decided to publish a strategy document with today’s policy statement.
Future monetary policy decisions will be conditional on the improvements in the inflation outlook. Inflation expectations, pricing behavior and other factors that affect inflation will be monitored closely and the cautious monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.
It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days."


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Turkey holds rates, tightens liquidity, ready for Fed move

Turkey holds rates, repeats inflation will determine moves

Turkey's central bank left its key interest rates unchanged, as widely expected, and repeated its recent guidance that it will continue its cautious policy stance by keeping a flat yield curve "until there is a significant improvement in the inflation outlook."
The Central Bank of the Republic of Turkey (CBRT) said food and energy prices continued to have a favorable impact on inflation but changes in the exchange rate of the Turkish lira is still delaying any improvement in inflation.
"This delay, combined with the uncertainty in global markets and volatility in energy and food prices, makes it necessary to maintain a cautious stance in monetary policy," the CBRT said.
The central bank maintained its key repo rate at 7.50 percent. It has cut the rate by 75 basis points this year as it slowly unwinds a 550 point emergency rate hike in January 2014.
Turkey's headline inflation rate eased to 7.2 percent in June from 8.09 percent in May while core inflation was steady at 7.9 percent. The CBRT targets inflation of 5.0 percent, plus/minus 1.5 percentage points.
"Future monetary policy decisions will be conditional on the improvements in the inflation outlook," the central bank said, repeating its guidance.
Future monetary policy decisions will be conditional on the improvements in the inflation outlook.
The lira has been depreciating since early 2014 but has stabilized since early June after national elections. On June 8 the lira hit a low of 2.75 to the U.S. dollar and was quoted at 2.73 today, up 0.7 percent this year.


The Central Bank of the Republic of Turkey issued the following statement:

"Participating Committee Members
Erdem Basç? (Governor), Ahmet Faruk Aysan, Murat Çetinkaya, Turalay Kenç, Necati Sahin, Abdullah Yavas, Mehmet Yörükoglu.
The Monetary Policy Committee (the Committee) has decided to keep the short term interest rates constant at the following levels:
a) Overnight Interest Rates: Marginal Funding Rate at 10.75 percent, the interest rate on borrowing facilities provided for primary dealers via repo transactions at 10.25 percent, and borrowing rate at 7.25 percent,
b) One-week repo rate at 7.5 percent,
c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate at 0 percent, and lending rate at 12.25 percent.
Loan growth continues at reasonable levels in response to the tight monetary policy stance and macroprudential measures. The favorable developments in the terms of trade and the moderate course of consumer loans contribute to the improvement in the current account balance. External demand remains weak, while domestic demand contributes to growth moderately. The Committee assesses that the implementation of the announced structural reforms would contribute to the potential growth significantly.
Food and energy price developments affect inflation favorably in the short run, while exchange rate movements delay the improvement in the core indicators. This delay, combined with the uncertainty in global markets and volatility in energy and food prices, makes it necessary to maintain the cautious stance in monetary policy. The Committee has therefore decided to keep the interest rates at current levels.
Future monetary policy decisions will be conditional on the improvements in the inflation outlook. Inflation expectations, pricing behavior and other factors that affect inflation will be monitored closely and the cautious monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.
It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days."

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Turkey holds rates, repeats inflation will determine moves