Turkey’s reserve bank raised its overnight financing rate on Tuesday, mentioning extreme changes in exchange rates that present upside threats to the inflation outlook.
The Monetary Policy Committee, led by Guv Murat Cetinkaya, treked the limited funding rate to 9.25 percent from 8.5 percent, the central bank stated in a declaration. The decision remained in line with expectations.
The over night borrowing rate was held stable at 7.25 percent and the one-week repo rate was left the same at 8 percent. Economists had anticipated the rates to be raised to 7.5 percent and 8.5 percent, respectively.
While developments in aggregate need assistance disinflation, excessive fluctuations in exchange rates since the previous policy session have increased the upside threats concerning the inflation outlook, the bank said.
“The significant increase in inflation is anticipated to continue in the short term due to lagged pass-through impacts and the volatility in food rates,” the bank stated.
“Accordingly, the Committee decided to reinforce the financial tightening in order to include the wear and tear in the inflation outlook.”
The bank likewise stated that it stands ready to provide further financial tightening when required.
“Needed liquidity steps will be taken in case of unhealthy rates habits in the forex market that can not be justified by financial fundamentals,” the bank stated.
The Turkish lira has been under significant downward pressure in current weeks, primarily due to political instability and concerns over central bank self-reliance.
The partial recovery in the economic activity shown by current information is anticipated to advance the back of helpful measures and incentives, the bank stated. Policymakers worried that implementation of the structural reforms would contribute to the prospective development significantly.
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