Turkish Monetary Policy Mix Modified
December 16, 2010
The Central Bank of the Republic of Turkey is taking an unconventional approach to stem excessive hot money inflows that have put upward pressure on the Turkish lira and which, officials fear, could create financial instability if left unchecked.
The main one-week repo rate has been cut for the first time since November 2009, dropping to 6.5% from 7.0% even though consumer price inflation of 7.3% is 1.8 percentage points higher than a year ago and 2.3 percentage points above the central bank’s end-2011 objective of 5.0%.
WE RECOMMEND THE VIDEO: Powerful Pin Bar Reversal Trading Strategy | High Probability Forex Trading
Download all my Forex MT4 indicators/EAs FREE - ***RESOURCES*** ▻ Broker I use, MYFX Markets: ...
Although the latest readings of growth in GDP (10.3%) and industrial production (9.8%) show robust gains, the level of capacity usage remains below the pre-recession level, so officials expect inflation to trend lower in the period ahead.
The reduction of the repo rate extends one of the larger down cycles in interest rates. Turkey’s central bank reduced its key interest rate in every month from November 2008 to November 2009, implementing a cumulative drop of 1,025 basis points over that period.
According to a released statement, today’s rate cut is part of several recent and possible future moves that represents a change in the monetary policy mix but not a shift in the overall degree of stimulus. Officials have also
- cut the overnight borrowing rate to 1.5% from 1.75% and 5.75% prior to November 10.
- raised the overnight lending rate to 9.0% from 8.75%, thus widening the band between those two rates to 750 basis points from 300 bps at the start of November.
- increased reserve requirements. A rise to 6.0% from 5.5% was announced last month, officials today said more increases could be coming.
- begun to consider using different reserve requirements for different maturities.
Officials hope these moves promote longer-term savings, fewer hot money inflows, lessening upward pressure on the lira, and a reduction of Turkey’s current account deficit, which exceeds 5% of GDP. They seem to have anticipated some criticism and confusion from the various recent policy moves and as a pre-emptive gesture to allay jitters assert in today’s statement that
The Committee assesses that the net impact of these measures on the monetary conditions will not be expansionary. The effects of today’s decisions will be monitored closely and additional measures will be implemented if necessary. It should be emphasized that any new data or information may lead the Committee to revise its stance.
Advanced nations and emerging markets have suffered collateral damage from Euroland’s debt crisis, and their policymakers have offered a variety of imaginative responses. Turkey’s central bank is trying something really different.
Copyright 2010 Larry Greenberg. All rights reserved. No secondary distribution without express permission.
This entry was posted on Thursday, December 16th, 2010 at 2:39 pm and is filed under Central Bank Watch. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
Comments are closed.
Currency Thoughts has evolved from a blog to a full-functioning website. This new design provides easier access to your favorite features and new capabilities to accept ads. In the future, it will be possible to register to accept emailed updates.
Thursday, 5 November 2020