Turkish Central Bank lowers interest rates 325 bps

ANKARA

The Turkish Central Bank on Sept. 12 lowered its policy rate (one-week repo rate) 325 basis points to 16.5 percent from 19.75 percent, marking a second rate cut in two months.

In a statement released after yesterday’s Monetary Policy Committee (MPC) meeting, the bank said recently released data indicate that moderate recovery in economic activity continues.

The Turkish Lira firmed against the U.S dollar after the bank announced its rate decision. The local currency gained more than 1 percent against the greenback to trade below 5.70 per dollar.

In the statement, the bank noted that the contribution of net exports to economic growth continued, while investment demand remained weak and the contribution of private consumption gradually increased in the first half of the year.

The statement underlined strong tourism revenues which support the economic activity through direct and indirect channels.

“Looking forward, net exports are expected to contribute to economic growth and the gradual recovery is likely to continue with the help of the disinflation trend and the improvement in financial conditions.”

The bank is confident that the current account balance will maintain its improving trend.

The latest data showed that the country’s current account deficit narrowed 82 percent on an annual basis to $548 million deficit this June.

Better inflation outlook

The bank also stressed the improvement in the inflation outlook. The annual inflation rate eased to 15 percent in August from 16.65 percent in the previous month.

Over the past decade, annual inflation saw its lowest level at 3.99 percent in March 2011, and it peaked at 25.24 percent last October.

“In addition to the stable course of the Turkish Lira, improvement in inflation expectations and mild domestic demand conditions supported the disinflation in core indicators. Domestic demand conditions and the level of monetary tightness continue to support disinflation,” the statement said.

According to the bank, the current monetary policy stance, to a large part, is consistent with the projected disinflation path.
“The extent of the monetary tightness will be determined by considering the indicators of the underlying inflation trend to ensure the continuation of the disinflation process.”

The bank reiterated that it will continue to use all available instruments in pursuit of the price stability and financial stability objectives.

“It should be emphasized that any new data or information may lead the Committee to revise its stance,” it added.