The Central Bank of the Republic of Turkey (CBRT) held all key interest rates steady following a special meeting of the Monetary Policy Committee on Thursday for the month of October. It left its benchmark one-week repo and overnight borrowing rates at 7.5 percent and 7.25 percent, respectively. The bank also kept the marginal funding rate steady at 10.25 percent. The CBRT has not changed any key rate since February.
The committee's reasons for its decisions were delayed improvements in core indicators, uncertainty in global markets and volatility in energy and food prices. The central bank also said that the inflation outlook was the key factor in the decision, as it has been in the past and would continue to be in the future, the bank said in a statement.
"Future monetary policy decisions will be conditional on the inflation outlook," it said. "Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation the tight monetary policy stance will be maintained." Christopher Dembik, an economist with Saxo Banque in Paris, said the decision had been expected.
"The bank's decision was no surprise as no move is expected until the U.S. Federal Reserve (Fed) makes its interest rate hike sometime this year," he told Anadolu Agency. "Because inflation remains high, the [CBRT] will have to act once the Fed makes its move, certainly within the next six months."
Economist Bora Tamer Yılmaz of Ziraat Securities in Istanbul agreed that the CBRT had been unlikely to make any changes ahead of the Fed. "Inflation is high but not trending much higher," he said. "So the bank can adjust liquidity using credit controls and by increasing lending at the overnight rate."
The currency pass-through - the effect of the low-valued lira on inflation - is not showing any major effect as commodity prices have declined, Dembik said. "The central bank can afford to take no action for the time being," he said.
An uncertain outlook was also cited as a factor in the decision. "Energy price developments affect inflation favorably while exchange rate movements delay the improvement in the core indicators," the bank said. "Considering the impact of the uncertainty in domestic and global markets on inflation expectations and taking into account the volatility in energy and food prices, the [monetary policy] committee decided to maintain the tight liquidity stance as long as deemed necessary."