Turkish central bank announces new monetary policy framework, keeps monetary stance unchanged

The Turkish central bank announced a new monetary policy framework. The effective monetary policy stance continues to be unchanged today, but it is a solid hint that the CBRT will be permitted more flexibility, noted Nordea Bank in a research report.

The Central Bank of Turkey announced simplification of its monetary policy framework. A highly asymmetric corridor is replaced by a more conventional monetary policy framework with a repo rate and symmetric overnight corridor. The central bank did not tighten its monetary policy stance today. The CBRT’s average cost of central bank funding%, which determines the market overnight rates, continues to be at 16.5 percent.

Still, Turkish leaders have taken another significant step towards stabilizing financial markets. By permitting the CBRT to simplify the monetary policy framework, President Erdogan sends a strong signal to the markets that the central bank has been given more flexibility to underpin the Turkish lira and to get inflation under control.

Looking ahead, the next monetary policy meeting in June would be important. The central bank probably needs to raise rates again to reposition itself as a credible central bank with sufficient independence to bring inflation down to target, stated Norde Bank.

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