Central Bank of Turkey may start simplifying monetary policy

Announced in 2015 as precautionary measure to Fed’s rate hike Turkey’s central bank says simplification of interest rate policies may start with upcoming January meeting

Photo by: Reuters
Photo by: Reuters

20 lira banknote seen through a magnifying lens, Istanbul, Turkey, January 28, 2014

Simplification of Turkey's interest-rate structure may start at the next monetary policy meeting in January, Erdem Basci, governor of the Central Bank of the Republic of Turkey said on Thursday.

Speaking at a presentation to the parliament's Planning and Budget Commission, Basci said: "With the start of normalization of global monetary policy, it is possible that volatility in financial markets may moderate. Should this occur, the simplification of Turkey's monetary policy may begin at the next meeting of the Monetary Policy Committee."

In a road map outlined last August, the central bank indicated that Turkey's interest rate structure, which has an upper and lower band, may be simplified, with the focus on the lower band, the one-week repo rate. The distance between the upper and lower part of the so-called "interest-rate corridor" is to narrow.

The one-week repo rate is 7.50 percent, the lower band, and the the upper band is 10.25 percent, for the overnight rate.  

Basci added: “The current monetary policy stance, in consideration of the inflation outlook, will remain tight." Other objectives, Basci said, were the stabilization of foreign exchange liquidity and the achievement of financial stability.”

Basci also noted the improvement of the current account balance, and pointed out that the recovery of demand from the European Union is supporting increased Turkish exports.

He welcomed the projected implementation of recently announced structural reforms by the government, saying that they may boost economic growth.