Another Rate Cut By Turkey

September 17, 2009

In the Group of Twenty whose leaders meet late next week, no central bank has cut its interest rates more extensively than Turkey’s.  The key overnight borrowing and lending rates have been reduced every month since November 2008 and by 950 basis points in all, including today’s as-expected reduction of 50 basis points.  From a peak of 16.75%, the lending rate (now at 9.75%) was sliced by 50 basis points in November, 125 bps in December, 200 bps in January, 150 bps in February, 100 bps in March, 75 bps in April and 50 bps each in May through September.  The overnight borrowing rate now becomes 7.25%.  Besides, the Central Bank of the Republic of Turkey accompanied today’s easing with a dovish statement pointing to the likelihood of more rate reductions in coming months as a deep recession gives way to a slow and uncertain recovery with acceptably low inflation.  Personal consumption, for example, is projected to be a lot weaker in the third quarter than the second quarter, and real GDP in the first half of 2009 was 11.0% lower than in 1H08.  The jobless rate was 3.6 percentage points higher on average in January-July than a year earlier.  CPI inflation slowed to 5.3% in August from 11.8% a year earlier — not quite as much as the lowering of the central bank interest rates — and is projected “to remain at low levels for a long period of time.”

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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