Turkey’s central bank keeps interest rates steady

Turkey’s central bank on Thursday said its Monetary Policy Committee had decided to keep short-term interest rates steady.

The one-week repo rate, also known as the bank's policy rate, stayed at eight percent while the marginal funding and overnight borrowing rates also held at 9.25 and 7.25 percent respectively.

The bank also kept late liquidity window interest rates steady – the borrowing rate at zero percent, and the lending rate at 12.25 percent.

"Recently released data indicate that the recovery in economic activity has gained strength," the bank said in a statement.

On Monday, the Turkish Statistical Institute (TurkStat) announced that Turkey's economy had grown 5.1 percent year-on-year in the second quarter of 2017. Annual growth in the first quarter was also above expectation, rising to 5.2 percent.

The annual growth rates for 2015 and 2016 were 6.1 percent and 3.2 percent respectively, while the 2017 growth target in the government's medium-term programme stands at 4.4 percent.

"Domestic demand conditions keep improving and demand from the EU economies continues to contribute positively to exports," the bank said.

 Structural reform

Turkey's exports to the EU from January to July were up 5.4 percent to $41.7 billion and the EU was the main destination for Turkish exports, according to TurkStat.

EU exports accounted for 46.3 percent of all Turkish exports.

Last month, Turkey's exports rose 12 percent year-on-year for the 10th month in a row, as exports in the first eight months rose 10.7 percent to $102.5 billion, according to the Turkish Exporters Assembly.

The central bank also said the implementation of structural reforms would contribute significantly to potential growth.

"Current elevated levels of inflation and developments in core inflation indicators pose risks to pricing behaviour," the bank said, stressing that it would maintain its tight monetary policy.

"The central bank will continue to use all available instruments in pursuit of the price-stability objective," it added.

"The tight stance in monetary policy will be maintained until inflation outlook displays a significant improvement."

Over the past three months, annual inflation stood at 10.9 percent in June, 9.79 percent in July, and 10.68 percent in August, according to TurkStat.

Inflation expectations, pricing behaviour and other factors affecting inflation will be closely monitored and, if needed, there will be further monetary tightening, the bank said.

Since the beginning of the year, the bank has kept its policy rate at eight percent. The next Monetary Policy Committee meeting – the seventh this year – will be held on October 26.