Turkey's Central Bank Lifts Key Rates Drastically
19 November 2020 - 9:30AM
RTTF2
In a bid to bolster the Turkish lira, the central bank lifted
its key rates drastically, as expected, on Thursday under the new
governorship.
At the first policy meeting of Naci Agbal as governor of the
Central Bank of the Republic of Turkey, the Monetary Policy
Committee raised the key one-week repo rate sharply by 475 basis
points to 10.25 percent from 15.00 percent.
All central bank funding will be provided through the one-week
repo rate, the bank said.
Early November, President Recep Tayyip Erdogan replaced TCMB
Governor Murat Uysal with former finance minister Agbal after the
Turkish lira fell to a record low this year. The latest hike was
the sharpest in more than two years. In September, the bank had
raised the rate from 8.25 percent, which was the first increase in
two years.
The decision to hike its one-week repo rate by 475 basis points
and pledge to provide all funding through this facility appears to
have done enough to convince investors that there really is a
positive shift in policymaking underway, Jason Tuvey, an economist
at Capital Economics, said.
The economist expects the repo rate to be left at 15 percent
until at least the end of 2021.
The bank said the lagged effects of depreciation in Turkish
lira, increasing international food prices and deterioration in
inflation expectations affect the inflation outlook adversely.
The committee decided to implement a transparent and strong
monetary tightening in order to eliminate risks to the inflation
outlook, contain inflation expectations and restore the
disinflation process, the bank said in the statement. Moreover, the
bank said the tightness of monetary policy will be decisively
sustained until a permanent fall in inflation is achieved.
The bank said it will attain the main objective of achieving and
maintaining price stability by adopting transparency,
predictability and accountability principles of the inflation
targeting regime.
The committee noted that partial restrictions to curb the
Covid-19 spread heightened uncertainties on the short-run outlook
of economic activity.
Besides, strengthening domestic demand, due to the lagged
effects of strong credit impulse during the pandemic, affects the
current account balance adversely through the imports channel, the
bank added.
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