Turkey’s central bank may tighten monetary policy more to tame inflation

“The central bank will continue to use all available instruments in pursuit of the price stability objective. Factors affecting the inflation outlook will be closely monitored and, if needed, further monetary tightening will be delivered,” Cetinkaya said during the presentation of quarterly inflation report in Istanbul.

The central bank raised its 2017 inflation forecast to 8.5% from 8% and its 2018 inflation forecast to 6.4% from 6%, Cetinkaya said. The bank kept its forecast for 2017 food price inflation at 9%. It expects inflation to slow to 5% in the medium term, Cetinkaya said.

The central bank Wednesday raised the late-liquidity lending rate to 12.25% from 11.75%, thereby charging Turkish banks more if they need to borrow just before local markets close. The central bank’s Monetary Policy Committee kept the one-week repo rate at 8%, the overnight lending rate at 9.25% and the overnight borrowing rate at 7.25%.

This was the bank’s third tightening so far this year to curb inflation which jumped to 11.3% in March from 10.13% in February and more than doubled the central bank’s inflation target of 5%.

Cetinkaya said the inflation is likely to fluctuate throughout this year, but it will slow to single-digit in the second half of the year.

Cetinkaya said Turkey’s central bank considerably simplified its monetary policy framework. The central bank ultimately aims to adopt a single policy rate—known as simplification—instead of a complex of multiple interest rates to set policy.

“The central bank will keep its [monetary] simplification aim,” Cetinkaya said. He added that the monetary policy committee maintains its projection of switching to single-policy rate when conditions allow.