Turkey's Central Bank keeps benchmark interest rate steady at 7.5 percent

The Central Bank of the Republic of Turkey (CBRT) has released the minutes of its Monetary Policy Committee's February meeting. According to the minutes, the bank did not change short-term interest rates as expected. It kept the overnight borrowing rate, which is the lower band of the interest rate corridor, at 7.25 percent. The bank also held its one-week repo interest rate, which is policy interest rate, at 7.5 percent and its overnight lending rate, which is the upper band of interest rate corridor, at 10.75 percent.

According to a survey that Reuters conducted with 17 companies, all participants expected the CBRT to keep short-term interest rates stable in February. The CBRT statement said annual credit growth rates remain at reasonable levels thanks to the impact of tight monetary policies and macro-prudential measures, adding: "Positive changes on international terms of trade and the moderate trend in consumer loans supports the recovery of the current account balance."

According to the statement, the positive impact of the rise in EU member states' demands on exports increasingly continues despite rising geopolitical risks. The monetary policy committee expects that the implementation of the announced structural reforms will significantly increase growth potential as well.

The statement also suggested that developments in energy prices continue to have a positive impact on inflation and that increasing cost factors restrict the improvement tendency in core inflation. It added, "Within this framework, the committee considered the impacts of cost developments and global uncertainties on inflation expectations and pricing behaviors, as well as to the volatility in energy and unprocessed food prices. It concluded that tight policies on liquidity will remain as long as it is necessary."

Decisions on monetary policies will depend on the inflation outlook in the upcoming period. Tight monetary policies will resume by considering developments in inflation expectations, pricing behaviors and all other factors that affect inflation, the statement concluded.

Meanwhile, while attending the 46th World Economic Forum (WEF) in Davos, Switzerland, in January, CBRT Governor Erdem Başçı had said ahead of the first meeting on the 2016 inflation outlook that the CBRT will fight rising inflation again this year. Moreover, he stressed that they will have to convince everyone that, according to the Medium-Term Program regarding inflation, the targeted rate is 7.5 percent for the end of this year, 6 percent for next year and 5 percent in 2018.

Furthermore, regarding achieving the inflation target, Başçı emphasized the importance of collective efforts, suggesting that taking steps that are in harmony with the government's plans is tantamount to supporting the long-term goals of the economy.

Elsewhere, Turkey's year-on-year inflation rate increased to 9.58 percent in January, and prices rose 1.82 percent when compared to December 2015. The inflation rate was 7.87 percent on the 12-month moving averages basis.