Turkey’s Central Bank kept all rates on hold Tuesday at its last monetary policy meeting of 2016.
The bank left its policy rate known as the one-week repo rate at 8 percent, its overnight lending rate at 8.5 percent, and its overnight borrowing rate at 7.25 percent, according to a press release posted on its website.
Last month the bank raised its policy rate 50 basis points from 7.5 percent to 8 percent and its overnight lending rate from 8.25 percent to 8.5 percent, while leaving the borrowing rate steady at 7.25 percent.
The hike in November came after it kept all rates unchanged in October following six consecutive months of reductions.
“Exchange rate movements due to recently heightened global uncertainty and the increase in oil prices pose upside risks on the inflation outlook. Yet, the aggregate demand developments restrain these effects. Developments will be closely monitored in order to make a sound assessment regarding the net impact of these factors,” the bank said on its website.
Muammer Komurcuoglu, an economist from IS Investment, told Anadolu Agency that the Central Bank thinks a slowdown in economic activity will limit inflationary pressure related to pass-through effects of the recent lira depreciation and rising oil prices.
“In this context, the bank has adopted a ‘wait-and-see’ strategy to see which effect will dominate. The fate of lira-denominated assets will be determined by international market developments. If the risk appetites weaken, the lira will continue to be fragile,” he added.
Despite the bank’s neutral tone, the statement said future monetary policy decisions will be conditional on the inflation outlook.
“Inflation expectations, pricing behavior, and other factors affecting inflation will be closely monitored and the cautious monetary policy stance will be maintained,” the bank said.
Enver Erkan, an analyst from KapitalFX, echoed Komurcuoglu’s view that the bank favors wait-and-see over being proactive.
“Especially after the October-November exchange rate volatility, an inflation rate fluctuation in the 8-10 band can be expected in January, February, and March 2017. The bank has not seen this effect yet. Therefore it didn’t take any action,” he said.
