Turkey CB to Stem Rising Prices

The Turkish Central Bank will closely monitor pricing behavior and implement further monetary tightening if needed, its governor said on March 8, but the lira weakened in apparent disappointment he did not give a clearer signal on rates.

Governor Murat Cetinkaya’s comments, at a conference in western Turkey, came just over a week before the bank’s next rate-setting meeting and helped trigger a lira slide of more than 1% against the dollar, Anadolu Agency reported.

The bank has taken unorthodox tightening steps to stem rising inflation and defend the lira after a slide at the start of 2017, but has not raised its policy rate since last November. Its next rate-setting meeting is on March 16.

“Heightened global uncertainty necessitates a cautious monetary policy stance. Accordingly, pricing behavior will be closely monitored and further monetary tightening will be implemented if necessary,” Cetinkaya said.

The bank is tightening liquidity, pushing the average cost of funding up by 20-25 basis points in the last week to a five-year peak against a background of double-digit inflation and Federal Reserve rate hike expectations. Since January, the funding rate has risen 225 basis points.

The lira weakened as far as 3.731 against the US currency after Cetinkaya’s presentation from 3.677 beforehand. The main share index fell 0.7%.

At its last monetary policy committee meeting on Jan. 24, the central bank hiked its overnight lending rate by 75 basis points to 9.25% and the rate at its late liquidity window to 11% from 10.

The bank shied away from raising its main repo rate, failing to ease concerns about its independence.