Hopes on rate cut rise as production weak

ISTANBUL - Reuters

Industrial production fell by 0.9 percent in March from the previous month. DAILY NEWS photo

The Turkish Central Bank is expected to make another cut in interest rates in May following the lower-than-expected March industrial production and inflation rate as well as the real effective rate over 120.

Seasonally and calendar-adjusted industrial production decreased by 0.9 percent in March compared to the previous month as it rose by 1.4 percent compared with the same month last year, according to figures revealed by the state-run statistic body, TÜİK, yesterday.

While economists evaluate the March industrial production figures as a slight economic recovery, the figures also raise hopes on the Central Bank’s 50 basis point cut this month.

“The recent real effective rate, industrial production index and the inflation rate – below expectations – may increase expectations for the Central Bank’s policy rate cut,” said Mehmet Besimoğlu, head economist of Oyak Invest. However, Garanti Invest’s strategist Tufan Cömert said the perception of the Central Bank’s continuation of rate cuts would be reinforced.

The Central Bank had said previously that it would intervene if the real effective rate was over 120.

“Although the borrowing rate slid to 4.96 percent in Turkey following the recent rate cuts by the Central Bank, Turkish banks do not reflect this in their credit rates,” Economy Minister Zafer Çağlayan said. He said the Banks Association of Turkey and the Banking Regulation and Supervision Agency should take steps on this issue. Çağlayan said the rate cut by the Central Bank was the right decision but late at the same time, adding that it had cost a slowing in industrial production. The situation of the industrial production index and the rate of capacity usage showed that Turkey’s growth in the first quarter would not be where they had aimed.

The Central Bank decided on this year’s first policy rate cut last month, decreasing it from 5.5 percent to 5 percent at the meeting of the Monetary Policy Committee (PPK).