Turkey holds key rate, raises lending rate to curb inflation

    Turkey’s central bank left its benchmark one-week repurchase rate steady at 8.0 percent but raised its late liquidity lending rate by a further 25 basis points to 12.0 percent and held out the prospect of further rate hikes to prevent a deterioration in the inflation outlook.
     While the Central Bank of the Republic of Turkey (CBRT) has maintained its key rate since hiking it by 50 basis points in November last year, it has been tightening its policy stance by other means, such as raising other policy rates, the rate it pays on local lenders’ U.S dollar reserves and required reserve ratios in a bid to boost the value of the lira and thus slow down inflation.
     But inflation jumped to 11.29 percent in March, the highest since October 2008, and the second consecutive month of double-digit inflation, well in excess of the bank’s target of about 5 percent.
     The CBRT’s cautious rate hike today comes a week after Turkish President Tayyip Erdogan, an ardent critic of high interest rates, won a referendum that grants him wider powers.
     The CBRT said food prices had led to a rapid rise in inflation and while the recent rise in risk appetite by investors may contain some of the pressure on costs, the current level of inflation risks leading to even further cost rises.
     Data showed prices of clothing and foot wear rose by 1.99 percent in March from February, followed by a 1.93 percent rise in the cost of food and non-alcoholic beverages.
     Looking ahead, the central bank said it’s tight monetary policy stance would continue until there is a “significant improvement in the inflation outlook” and “additional monetary tightening will be possible if needed.”
     After falling sharply in the last two months of 2016, Turkey’s lira has staged a slight rebound since hitting a historic low of 3.87 to the U.S. dollar in late January, helped by the central bank’s various tightening measures.
    Today the lira was trading at 3.59 to the dollar, down 1.7 percent since the start of this year.

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

Participating Committee Members