Central Bank threw a curveball
The Central Bank Monetary Policy Committee raised the one-week repo rate – also the policy rate – from 16.65 to 17.75. Almost no one thought that the Central Bank was going to make a rate hike of 125 points. General expectation was in the 50 to 100 range.
The committee said that recent economic data signaled a balancing trend in business activity, robust foreign demand and a more modest domestic demand.
“Cost factors have been the main driver of the recent upsurge in inflation,” it wrote. “On the other hand, price increases have shown a generalized pattern across subsectors. Despite the mild outlook for demand conditions, elevated levels of inflation and inflation expectations continue to pose risks to pricing behavior. Accordingly, the Committee decided to further strengthen monetary tightening to support price stability.
“The Central Bank will continue to use all available instruments in pursuit of price stability. The tight stance in monetary policy will be maintained decisively until the inflation outlook displays a significant improvement. Inflation expectations, pricing behavior and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered.”
GLP ncreased to 20.75 percent
The one-week repo rate is the rate the Central Bank uses as a base. The overnight borrowing and lending rate is defined as +/-150 points of the policy rate. The late liquidity window, on the other hand, is calculated by adding 150 points to the ceiling of the overnight lending rate. Currently, the policy rate is 17.75 percent. The overnight borrowing and lending rates are between 16.25-19.25 percent. The late liquidity window rate has increased to 20.75 percent. After this unexpected rate hike, the dollar declined below 4.50 and euro to below 5.30, an understandable outcome of the rate hike.
But the real trend of foreign exchange rates will become evident after the June 24 elections.
Inflow just $44 m ll on dollars
The Central Bank released its data on non-residents’ capital inflow-outflow last week. According to the figures, between the last four days of May and the first two days of June, non-residents bought $15 million of stocks and $29.4 million of government debt securities. So the total foreign exchange inflow was $44.4 million, a positive result after several weeks of net outflow. The numbers may be low but it is capital inflow nonetheless.