Turkey’s Central Bank keeps policy rate unchanged

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The Central Bank of the Republic of Turkey on Wednesday announced its Monetary Policy Committee decision about short-term interest rates.

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

The committee 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. — was changed, as borrowing rate was kept at 0 percent while lending rate was increased from 12.75 percent to 13.50 percent.

Wednesday's Monetary Policy Committee meeting is the third of eight meetings scheduled for the year. At the first meeting on Jan. 18 and the second meeting on March 7, the Central Bank kept the interest rates unchanged.

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

"Recently-released data indicate that economic activity maintains its strength," the Central Bank said. "Domestic demand continues to expand and external demand contributes positively to exports.

"Current elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior," it said, noting that an upward movement in import prices had increased such risks and the committee decided to implement a measured monetary tightening to support price stability.

Inflation outlook

According to the country's statistical authority, TurkStat, last month consumer prices in Turkey rose 10.23 percent, year-on-year, marking a slight decrease of 0.03 percentage points compared with figure from February.

"The Central Bank will continue to use all available instruments in pursuit of the price stability objective," the Central Bank said. "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."

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.

"Inflation expectations, pricing behavior and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered," the bank added.

Over the past few months, the country has been witnessing harsh fluctuations in foreign exchange rates.

The U.S. dollar/Turkish lira rate stood at 4.09 as of 2.50 p.m. local time (1150GMT), while it was around 3.75 at the beginning of this year — marking over 9 percent rise.

Last year, one U.S. dollar traded for 3.65 Turkish liras on average, compared with 3.02 in 2016.

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