Turkey Cuts Lending Rate for 7th Straight Month to 8.25%



The Central Bank of the Republic of Turkey held its benchmark one-week repo rate at 7.5 percent on September 22nd, as widely expected, but lowered its overnight lending rate for a seventh time in a row to 8.25 percent despite high inflation and worries about possible credit rating downgrades. Policymakers said a cautious monetary policy stance has to be maintained amid recent tax adjustment in cost of fuel while annual inflation is expected to decline in the short-term due to falling food prices. Inflation was last recorded at 8.1 percent in August, well above central bank's 5 percent target.

Meanwhile, the bank kept the overnight borrowing rate at 7.25 percent.

Statement by the Central Bank of the Republic of Turkey:

Recently released data and indicators regarding the third quarter display a deceleration in the economic activity. The Committee assesses that current financial conditions are tight. While developments in tourism revenues will have a negative impact in the short run, the lagged effects of the developments in the terms of trade and the moderate course of consumer loans will continue to contribute to the improvement in the current account balance. Demand from the European Union economies continues to support exports. With the supportive measures and incentives provided recently, domestic demand is expected to recover starting from the final quarter. The Committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly.

The slowdown in aggregate demand contributes to the gradual fall in core inflation. With the help from falling food prices, headline inflation is expected to display a decline in the short term. Yet, the recent tax adjustment in fuel prices and other cost factors limit the improvement in inflation and thus necessitate the maintenance of a cautious monetary policy stance.

In light of these assessments, and considering its contribution to the effectiveness of monetary policy, the Committee decided to take a measured and cautious step towards simplification.

Future monetary policy decisions will be conditional on the inflation outlook. Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the cautious monetary policy stance will be maintained.

Turkey Cuts Lending Rate for 7th Straight Month to 8.25%


Central Bank of Turkey | Joana Ferreira | joana.ferreira@tradingeconomics.com
9/22/2016 11:16:14 AM