Central Bank of Turkey keeps key interest rates on hold

Turkey's Central Bank says it will maintain tight monetary policy until significant improvement in outlook for inflation actualised

Updated Jul 28, 2015

In April’s Monetary Policy Board meeting, the Central Bank of Turkey left the one-week repurchase rate at 7.5 percent, leaving the main interest rate unchanged for three consecutive months. Overnight lending and overnight borrowing rates were also kept at the same levels.

However, in accordance with the central bank’s announcement on April 14, the bank took steps regarding liquidity management. The cost of one-week foreign exchange lending was reduced by 50 basis points for both the euro and dollar. Additionally, the bank increased the partial interest rate payment made to banks for their lira reserves by 50 basis points. The increase will be valid starting on May 8.

The moves aim to ease some of the pressure on the Turkish lira, while boosting dollar liquidity. “A measured cut in the forex deposit lending rates and a measured hike in the partial remuneration rate on the lira required reserves will support financial stability,” the bank said in its statement.

After Turkey’s central bank announced that it is keeping three of its main interest rates at the current levels, the Turkish lira slid 1 percent to 2.7124 against the dollar, marking the biggest decline in more than a week.

So far, the central bank cut 250 basis points and brought the key interest rate to 7.50 percent. In addition to lowering the one-week repo rate to 7.50 percent in its February meeting, the bank cut its overnight borrowing rate to 7.25 percent, while the overnight lending rate was cut by 50 basis points to 10.75 percent.

The current level of Turkey’s interest rates remains a source of debate in the country. Last year in January, the Central Bank of Turkey increased rates drastically, aiming to curb the losses of the Turkish lira against the dollar and the euro. Since then, the central bank has been cutting the rates at a very slow pace, a move highly criticised by the Turkish government, due to the fact that high interest rates put downside pressures on economic growth as well as job creation.

In its April meeting, the central bank said uncertainty in global markets and food price increases required continued caution in monetary policy.

TRTWorld and agencies