Turkey’s central bank held its key interest rates steady for a fifth straight month on Thursday, citing delay in improvement in inflation indicators, volatile energy and food prices, and uncertainty in the global markets.
The Monetary Policy Committee of the Turkish central bank decided to keep the one-week repo rate unchanged at 7.5 percent. The overnight lending rate was maintained at 10.75 percent and the borrowing rate was retained at 7.25 percent. The decision was in line with economists’ expectations.
“Food and energy price developments affect inflation favorably in the short run, while exchange rate movements delay the improvement in the core indicators,” the bank said in a statement.
“This delay, combined with the uncertainty in global markets and volatility in energy and food prices, makes it necessary to maintain the cautious stance in monetary policy.”
Inflation eased to its lowest level in more than two years during June, slowing to 7.20 percent from 8.09 percent in April.
“Future monetary policy decisions will be conditional on the improvements in the inflation outlook,” the bank said.
“Inflation expectations, pricing behavior and other factors that affect inflation will be monitored closely and the cautious monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.”
The bank also noted that the tight monetary policy stance and macroprudential pressures have led to the continuation of reasonable levels of loan growth. Further, policymakers said that the favorable developments in the terms of trade and the moderate course of consumer loans contribute to the improvement in the current account balance.
However, external demand remains weak, the bank said, while domestic demand contributes to growth moderately. It expects the implementation of the announced structural reforms to contribute to the potential growth significantly.
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