Turkey’s Central Bank Boosts Reserves, Warns of Inflation

Turkey’s central bank increased by 3-5 percentage points(depending on the length of maturities) the reserve requirement rate while keeping the benchmark interest rate unchanged, saying that tighter monetary conditions are needed to offset surging global oil prices. The central bank in Ankara kept its one-week repo-lending rate at a record low of 6.25 percent. Economists judged the very sharp rise in reserve requirements as very likely to be effective in curbing credit growth.

The central bank’s hike in reserve requirements is very aggressive. Its effect will be to constrain credit growth and strengthen the Turkish Lira. The former should reduce the growth rate of the current account deficit; the latter will not. This is the last meeting of the Central Bank’s Monetary Policy Committee to be chaired by departing Governor Durmus Yilmaz. His successor is not yet identified.

Source: Bloomberg News

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