Central Bank cuts benchmark rate to 9.25 pct

Bloomberg

The overnight borrowing rate was lowered to a record 9.25 percent, the Ankara-based bank said in an e-mailed statement Thursday. The median estimate of 21 economists surveyed by

Bloomberg was for a half-point cut. The Bank will release minutes of the meeting within eight working days.

Bank Governor Durmuş Yılmaz has shaved 7.5 percentage points from the benchmark rate in seven months, joining policy makers worldwide in trying to pull economies out of recession as inflation slows. Turkish consumer prices rose an annual 6.1 percent in April, the slowest pace since July 1970.

"The statement suggests we’re going to see a further cut, perhaps of 25 or 50 basis points," said İnan Demir, an economist for Finansbank in Istanbul. "But I think we’re pretty close to the end of the easing cycle and in the second half of the year they may keep rates steady."

The Bank said it may maintain its "easing bias for some time." Any future rate reductions will be "measured," it said in a statement accompanying the decision.

"With the danger of inflation disappearing, the Bank is far more comfortable and free to act as it sees fit," said Şengül Dağdeviren, a chief economist at ING Bank in Istanbul. "The trajectory for rates remains downward."

Target inflation

Yılmaz has targeted inflation of 7.5 percent for this year and said on April 30 that consumer-price growth may drop to 6 percent, "assuming that interest rates are cut a limited amount in the short term and then held unchanged."

Turkish gross domestic product contracted 6.2 percent in the fourth quarter of 2008, the first decline in seven years. The unemployment rate rose to 16.1 percent in February, the highest since records began in 2005, with the number of jobless people jumping to 3.8 million from 2.6 million a year earlier.

Turkey and the International Monetary Fund are discussing a possible loan agreement to help buttress the economy against the slowdown. The two have been holding talks on a new financial support arrangement since a $10-billion loan accord ended in May.