Central Bank cuts interest rate first time in 16 months

ISTANBUL - Reuters

Central Bank chief Erdem Başçı speaks to reporters at a meeting. AA photo

The Central Bank cut its main policy rate for the first time in more than a year yesterday as falling inflation gave it room to step up its fight against a sharper-than-expected economic slowdown.

The bank lowered its policy rate, the one-week repo rate which had been on hold since August 2011, to 5.50 percent from 5.75 percent, but left the lower boundary of its interest rate corridor, its overnight borrowing rate, at 5 percent.

Overnight lending rate on hold

It also left its overnight lending rate, which it has trimmed three times since September, on hold at 9 percent. The bank said it may adjust its rate corridor again in a measured way in the period ahead and said it was appropriate to keep rates low as capital inflows accelerate.

The Turkish Lira firmed to 1.7805 against the U.S. dollar in response to the decision from 1.7850 beforehand.

The Central Bank has been trying to stoke growth by boosting liquidity since the middle of the year, but a gaping current account deficit has meant it has been cautious not to cut too aggressively. It has been trimming its overnight lending rate in a bid to reduce the interest rates banks charge on loans, but the slowdown in the third quarter, combined with a fall in industrial production, suggested the need for deeper moves.