The Central Bank (CBRT) has announced its interest rate decision following the December Monetary Policy Committee (MPC) meeting chaired by bank president Murat Çetinkaya. The bank passed the December period keeping the policy rate and interest rate stable in a decision long awaited by domestic markets. The CBRT had lowered the interest rate corridor's upper band for seven months in a row since March but decided to increase interest rates at last month's meeting. The bank had also left rates unchanged in October, after the cuts had reached a total of 250 basis points since March.
The CBRT's latest interest rate hike was recorded on January 29, 2014. After holding an extraordinary meeting, the bank brought the policy rate to 10 percent from 4.5 percent. The bank then gradually decreased the rate and had kept it at 7.5 percent since February 25, 2015.
The MPC kept the marginal funding rate (the upper band of the interest rate) at 8.5 percent, the Central Bank borrowing interest rate (lower band of interest rate) at 7.25 percent and the one-week maturity repo auction rate (policy rate) at 8 percent. While some experts expected the CBRT to raise interest rates this month before the U.S.'s critical decision to raise interest rates, some expected no change. The U.S. Federal Reserve increased benchmark interest rates by a quarter percentage point last week, raising interest rates from 0.5 to 0.75 percent.
At the last meeting chaired by Erdem Başçı, the CBRT announced a discount of 25 basis points in the upper band of the interest rate "corridor" following 50 basis points in the April, May and June meetings, and 25 basis points in the July, August and September meetings. Thus, the CBRT passed October with the total cuts made since March reaching 275 basis points.
MPC meeting summary
In the statement made by the Central Bank, the Monetary Policy Committee (the Committee) decided to keep the interest rates applied at the Interbank Money Market and the Istanbul Repo-Reverse Repo Markets under the scope of the Central Bank and the one-week maturity repo auction interest rates stable as follows:
a) Overnight interest rates: Marginal funding rate is 8.5 percent, Central Bank borrowing interest rate is 7.25 percent,
b) One-week maturity repo auction interest rate is 8 percent,
c) Late Liquidity Window interest rates: Within the framework of the Late Liquidity Window application, Central Bank borrowing rate applied at night between 16.00-17.00 at the Interbank Money Market is 0 percent, lending interest rate is 10 percent.
Recently announced data indicate that economic activity has showed a partial recovery in the fourth quarter after losing momentum in the third quarter of the year. The positive effect of the increase in the demand of European Union countries on exports continues. The modest recovery in economic activity is expected to continue along with the supportive incentives and measures. The Committee evaluates that the implementation of structural reforms could significantly increase the growth potential.
Exchange rate movements and increase in oil prices due to the rise in global uncertainty in the recent period pose an upward risk to the inflation outlook. On the other hand, total demand growth limits these effects. The Committee stated that it will be beneficial to follow developments closely in order to better evaluate the net effects of these factors.
Monetary policy decisions will depend on the outlook of inflation in the coming period. The cautious stance on monetary policy will be maintained by closely monitoring inflation expectations, pricing behaviors and other factors that affect inflation. It should be stressed that any new data and information to be disclosed may cause the Committee to change its policy stance towards the future.
The Monetary Policy Committee Meeting Summary will be published within five business days.