Turkish central bank simplifies policy; lira gains

Turkey’s central bank said it was simplifying an operational process regarding monetary policy. The lira extended gains against the dollar.

The one-week repo rate will be the benchmark of monetary policy, equaling the current funding rate of 16.5 percent, it said.

“Central bank overnight borrowing and lending rates will be determined at 150 basis points below/above the one-week repo rate,” the bank said in a statement on its website on Monday.

The framework will take effect on June 1 and technical details will be announced in the coming days, the bank said.

The lira extended earlier gains on the news, rising 2.3 percent to 4.5983 per dollar at midday in Istanbul.

The one-week repo rate, unused since January last year, was previously set at 8 percent. Turkey’s central bank has embarked on a series of rate increases to its late liquidity rate since, which currently stands at 16.5 percent after a 300 basis-point hike last week.

The central bank’s announcement on Monday was previously flagged to investors, but the level of the one-week repo rate and the exact details of the mechanism were unknown.

The bank will implement interest rate policy via a narrow, symmetrical band of rates, BloombergHT reported earlier in the day.

The inflation rate of 10.9 percent is expected to ease from July, BloombergHT said citing a statement by Central Bank Governor Murat Çetinkaya to bankers on Sunday.