Turkey Central Bank Cuts Benchmark Interest Rate to 5.0% in April


The Central Bank of Turkey cut the one-week repo policy rate to 5.0 percent from 5.5 percent. It cut the borrowing rate to 4.0 percent from 4.5 percent and the lending rate to 7.0 percent from 7.5 percent.

Excerpt from the statement by the Monetary Policy Committee:

Recent data suggest that domestic and external demand are evolving in line with expectations. Domestic demand follows a healthy recovery while exports slow down due to weak global economic activity. The current account deficit has increased somewhat following the revival in domestic demand. However, the current policy framework and the decline in commodity prices are expected contain the widening in the current account deficit.

Recently, there is a re-acceleration in capital inflows and credit growth hovers above the reference rate. The Committee indicated that, in order to balance the risks on financial stability, the proper policy would be to keep interest rates low while increasing foreign currency reserves via macroprudential measures. Accordingly, it was deemed appropriate to further increase the reserve options coefficients, while delivering a cut in the short term interest rates.
 
Ongoing uncertainties regarding the global economy and the volatility in capital flows necessitate the monetary policy to remain flexible in both directions. Therefore, the impact of the measures undertaken on credit, domestic demand, and inflation expectations will be monitored closely and the funding amount will be adjusted in either direction, as needed.
 
The Committee has indicated that the weak global demand and the commodity price outlook contain the upward pressures on inflation. In the meantime, the impact of increases in credit and domestic demand on the pricing behavior will be monitored closely.

Bank of Turkey | Nuno Fontes | nuno@tradingeconomics.com
4/16/2013 12:45:33 PM