ANKARA (AA) – Turkey’s Central Bank Tuesday hiked its late liquidity window lending rate by 0.75 percentage points, leaving all other key rates on hold, according to statement from the bank on Thursday.
The overnight lending rate, the rate banks use to borrow from the Central Bank overnight, was kept at 9.25 percent. The overnight borrowing rate, under which banks lend or deposit money to the Central Bank, also remained unchanged at 7.25 percent.
The one-week repo rate, known as the policy rate, was also kept at 8 percent, according to the statement.
However, for interest rates used in the Central Bank’s late liquidity window – between 4 p.m. (1300GMT) and 5 p.m. (1400GMT) – the borrowing rate was kept at zero percent while the lending rate was raised from 11 percent to 11.75 percent.
The bank said recent data indicates a gradual recovery in economic activity thank to recovering EU demand for Turkish exports while weak domestic demand limits improvement.
“With the supportive measures and incentives provided recently, the recovery in economic activity is expected to continue at a moderate pace. The [Monetary Policy] Committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly,” said the statement.
The bank said the tightening is aimed at addressing the significant rise in inflation which is expected to continue in the short term due to lagged pass-through and the base effect in food prices.
“Accordingly, the Committee decided to strengthen the monetary tightening in order to contain the deterioration in the inflation outlook.” statement read.
“Pass-through from recent exchange rate developments may lead to upside inflationary pressures in the short term; yet, with the support of the tight monetary stance, inflation is expected to trend downwards by mid-year,” Governor Murat Cetinkaya said on the Central Bank’s Twitter account on March 8.
But Cetinkaya warned in same series of tweets that global uncertainty requires a cautious monetary policy stance and that the Central Bank is ready to implement further tightening if there is a deterioration in pricing behavior.