Turkey's Central Bank increases interest rates

Turkey Central Bank raised the overnight interest rates, with the borrowing rate rising to 8% from 3.5 %, and the lending rate to 12 % from 7.75 %.

Turkey's Central Bank increases interest rates

World Bulletin / News Desk

The Monetary Policy Committee of Turkey’s Central Bank raised the one-week repo rate, (the policy rate) to 10 percent from 4.5 percent, according to a statement released by the bank.

The Monetary Policy Committee (MPC) has decided to adjust the short-term interest rates-Overnight Interest Rates- while the Marginal Funding Rate has been increased to 12 percent, from 7.75 percent. 

The borrowing rate has been raised to 8 percent from 3.5 percent.

Additionally, the interest rate on borrowing facilities provided for primary dealers via repo transactions has increased to 11.5 percent from 6.75 percent.

For the late Liquidity Window Interest Rates, (between 4:00 pm – 5:00pm), the borrowing rate will be kept at 0 percent, and the lending rate will be increased to 15 percent from 10.25 percent.

“Recent domestic and external developments are having an adverse impact on risk perceptions, leading to a significant depreciation in the Turkish lira and a pronounced increase in the risk premium. The Central Bank will implement necessary measures at its disposal to contain the negative impact of these developments on inflation and macroeconomic stability,” the statement said.

The MPC stated that the Committee decided to implement a strong monetary tightening and will simplify the operational framework.

As a result of the increased interest rates, the dollar value has decreased from 2.26, to 2.18. The euro has decreased from 3.09 to 2.97.

“Accordingly, (i) the one-week repo rate has increased from 4.5 percent to 10 percent; (ii) the Central Bank liquidity will be provided primarily from the one-week repo rate instead of the marginal funding rate in the forthcoming period.”

“A tight monetary policy stance will be sustained until there is a significant improvement in the inflation outlook. Under this policy stance, inflation is expected to reach the 5 percent target by mid-2015,” the statement read.

Recent developments in Turkey’s currency volatility have prompted an emergency meeting with the Monetary Policy Committee on Tuesday.

Last Tuesday the Committee chose to leave the one-week repo rate (policy rate) unchanged at 4.5 percent, and kept the overnight interest rates the same; the borrowing rate stayed at 3.5 percent and the lending rate at 7.75 percent.

Turkey's Central Bank increased its 2014 inflation forecast to a mid-point of 6.6 percent, from 5.3 percent on Tuesday, predicting a 5 percent fall by the end of 2015.

Starting next month, the U.S Central Bank will cut its purchases of bonds, known as quantitative easing, aimed at boosting its economy, to US$75 billion from US$ 85 billion, according to the board's decision in December.

This has raised concerns that investors could pull out of the emerging market economies, such as Turkey, Brazil and India, resulting in a further fall in stocks and currencies in those economies.

Turkish Treasury borrows US$1.56 bln in 2 bond auctions

Turkey´s Treasury has borrowed 3.4 billion Turkish Lira (US$1.56 billion) in two bond auctions.

The Central Bank´s website said that 24-month fixed rate bonds with a semiannual 4.15 percent coupon rate were sold with maturity scheduled for July 10, 2015.

The 24-month fixed rate bonds were sold at 10.73 percent simple interest and 11.01% compound interest.

The second auction was for 10-year fixed rate bonds with a semiannual 4.40 percent coupon rate with maturity set for September 27, 2023.

The 10-year fixed rate bond was sold at 10.17 percent simple interest and 10.43 percent compound interest.

Fitch sees no need to change Turkey's rating

Fitch ratings agency does not see a need to change the credit rating of Turkey, senior director Paul Rawkins said.

In reference to the soaring value of the dollar against the Turkish Lira, Rawkins said the agency's last assessment will remain unchanged.

Rawkins said, "Events in Turkey did not affect the country's "BBB-" credit rating. The current crisis is extremely fluid and has not had a negative effect on the macroeconomic outlook." 

On January 7, Fitch said Turkey's current rating has not been affected by recent events. The country's dependence on net capital outflow and the fragility of investor perception stemmed from this issue is assessed in rating.

Güncelleme Tarihi: 29 Ocak 2014, 11:23