Turkish Central Bank cuts interest rates by more than expected 50 bps
Hurriyet Daily News with wires
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The bank's monetary policy board said it trimmed the key borrowing and lending rates by 50 basis points to a new record low -- above market expectations of 25 basis points -- to 8.75 percent and 11.25 percent respectively, in its eighth consecutive cut.
In a Reuters poll of 29 banks and brokerages, 21 expected a 25 basis points cut. Six forecast a 50 basis-point reduction, one expected a cut of 75 basis points and one forecast that rates would be unchanged.
The bank has slashed interest rates by a full eight percentage points since November as falling demand sent inflation and industrial production tumbling.
"Foreign demand continues to be weak and internal investment demand is regressing. We believe recovery in economic activity will take time, employment conditions will stay the same for a while and that inflation will remain low," the board said in a statement.
The statement said the next possible rate cut could be "moderate" or that the board might slow down or halt rate cuts if there were stronger signs of recovery in the economy.
In May, Turkey's 12-month inflation fell to 5.24 percent, its lowest level in 39 years. The Central Bank has set its year-end inflation target at 7.5 percent but has said it will likely undershoot this.
Analysts believe Turkey entered a recession in 2009 after a 6.2-percent contraction in the last quarter of 2008.
Central Bank governor Durmus Yilmaz has said gross domestic product, or GDP, could post a double-digit contraction in the first quarter of 2009 before returning to growth in the last quarter.
In April, the government revised a 4.0-percent GDP expansion target for 2009 and said the economy would contract 3.6 percent. The International Monetary Fund has said it expects the Turkish economy to contract 5.1 percent in 2009.
CB TO HOLD LONG-TERM REPO AUCTIONS
The Central Bank will begin to hold three-month repo auctions as of June 19, 2009, the bank said on Wednesday.
A statement released by the Central Bank said auctions would take place every Friday for one month from June 19, in addition to its existing one-week repo’s, as a means of meeting liquidity needs.
The bank said a liquidity squeeze in the market was expected to continue in the coming three to four months with occasional spikes.
After the initial month of three-month repo’s, the bank will hold 1-, 2- or 3-month repo’s on Friday’s, depending on the liquidity deficit.
The bank said uncertainties over long term liquidity developments persisted and it could not make a clear prediction whether existing liquidity conditions would be permanent.
It said the market has had a liquidity shortage since May 2008.