Turkish Central Bank revises up inflation outlook, signals unorthodox policy to go on

Turkey's Central Bank bank governor signaled on Jan. 31 that its unorthodox steps to manage sharp falls in the Turkish Lira were working and would continue until the inflation outlook shows a significant improvement.

Announcing a quarterly assessment, the bank raised its inflation forecast for the end of 2017 to a mid-point of 8 percent, from 6.5 percent in its previous report, and said its forecast for inflation at the end of 2018 stood at 6 percent.

Governor Murat Çetinkaya said the bank's move to provide funding through its late liquidity window, which has driven up the average cost of funding, was currently sufficient. But he said the bank may take additional measures if needed.

"We will continue to use these steps as long as necessary. It should be expected for this framework to continue for a certain time," he told a news conference.

"Risks are upward, but the critical point is that the monetary policy is having the necessary effect."

The bank's efforts to stem chronic falls in the lira through liquidity management while avoiding the sort of conventional rate hike long opposed by some top officials have raised concern among investors.

It last week hiked its overnight lending rate by 75 basis points to 9.25 percent and the rate at its late liquidity window to 11 percent from 10, lifting borrowing costs at the two main channels through which it has been funding the market in what some economists described as tightening by the back door.

It left its main one-week repo rate on hold at 8 percent, defying many economists' expectations of a hike, although it has not held a daily one-week repo auction since Jan. 11 in a bid to tighten lira liquidity.

The bank has said it is aiming, over time, to...