Interest rates up

The Central Bank yesterday raised the central intervention rate by 25 basis points to 3.75 per cent.

The Bank said that to the extent that higher interest rates dampen the relatively strong demand for credit by the personal sector and encourage savings, they should limit the demand for imports and help to contain inflationary pressures.

The decision was taken by the Bank's Governor at the end of the Monetary Policy Advisory Council meeting.

On the basis of the council's deliberations, the Governor concluded that an increase in official interest rates was called for. He pointed out that the decision was taken against the background of a further narrowing of the short-term interest rate differential in favour of the lira in October, mainly as a result of an increase in euro interest rates, and amid expectations of a continued tightening of monetary policy abroad.

By increasing the differential to a level at which it provided stronger support for the exchange rate peg, the rise in the central intervention rate served to reaffirm the importance of exchange rate stability among the Bank's monetary policy objectives, the Central Bank said.

The Governor further observed that while the Bank's external reserves had extended their upward trend in October, this again reflected a number of one-off factors. The economy's underlying foreign earnings capacity was, however, better reflected in the current account deficit.

Looking ahead, the Bank would continue to monitor market developments both domestically and abroad.

The Monetary Policy Advisory council is due to meet again on November 27.