The Central Bank of Turkey shocks with upper-band cut

ISTANBUL - Hürriyet Daily News

Turkish Central Bank Governor Başçı speaks. The Central Bank has kept the policy rate constant as expected but cut the upper-band of the corridor. DAILY NEWS photo, Selahattin SÖNMEZ

The Central Bank of Turkey has unexpectedly narrowed the interest rate corridor in the lending rate through fall, while keeping the policy rate unchanged at 5.5 percent.

The Bank cut the upper-band of the interest rate corridor, or the overnight lending rate, from 8.5 percent to 7.5 percent, while it kept or lower band of the corridor, or the overnight borrowing rate, at 4.5 and 5.5 percent, also in line with expectations.

“The recent cut in the interest rate corridor indicates that the CBRT is not concerned about the loan trend as much as the markets,” said a report published by Odebank’s research department March 26 after the announcement.

More optimistic tone

The tone of the Central Bank in the report of the Monetary Policy Committee’s meeting has also signaled a change, with a move toward optimism over markets.

“Domestic demand is following a healthy recovery while exports remain relatively strong despite weak global economic activity,” the report says.

In the previous report, the Bank had used the term “moderate” to define the recovery instead of “healthy,” indicating the increasing confidence, Vakıfbank has said.