The Monetary Policy Committee on Thursday announced that the Central Bank of Turkey left the one-week repurchase rate at 7.50 percent for July and kept the overnight borrowing rate at 7.25 percent. The overnight lending rate also remained unchanged at 10.75 percent.
The bank stated that decline in food and energy prices have had a positive impact on inflation, while the developments regarding volatile exchange rate caused a postponed recovery in core inflation.
According to analysts, the central bank is watching political developments closely and will implement neither a policy shift, nor a change in interest rate levels before a coalition government is formed in Turkey.
However, analysts argue that declining inflation has opened up room for the central bank to cut lower interest rates. Thanks to decline in food prices, the consumer price index (CPI) declined 0.51 percent in June, taking the annual inflation rate to 7.20 percent from 8.09 percent in May, the lowest level in two years.
Central Bank of Turkey Governor Erdem Basci often reiterates that “cautious monetary policies” will remain until desired levels in inflation are reached.
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 reduce 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.