Turkish Central Bank Rates Cut 50 Basis Points

October 15, 2009

The Central Bank of the Republic of Turkey cut its overnight borrowing rate and overnight lending rate by 50 basis points each to 6.75% and 9.75%, respectively, as analysts had anticipated.  No central bank in the G-20 has reduced rates as much as Turkey’s.  One year ago, the benchmark rates were 1000 basis points higher than now.  That average pace of 91 basis points a month in the space of eleven months was achieved by reductions of 50 basis points in each of the last six months, 75 bps in April, 100 bps in March, 150 bps in February, 200 bps in January, 125 bps last December and an initial 50 basis points in November.

The policy bias continues to be toward even lower interest rates.  A statement released today signals that rate cutting is not done and promises to keep an easing bias for a long period of time.  Nonetheless, an inflection point in policy appears at hand.  Inflection points denote changes in the rate of change — the second derivative for math geeks — rather than trend reversals, and officials say they will consider implementing smaller-sized cuts at the next monthly meeting.  None of the prior rate cuts was by less than 50 basis points.

The statement warns that a setback in personal consumption growth likely occurred last quarter.  Signs of improvement have emerged in some aspects of the economy and in credit markets, suggesting that the extensive reduction of interest rates may be starting to pay dividends.  But CPI inflation, which has dropped 7.3 percentage points to 5.3% over the past year, is expected to stay low for a long period, too.  The Turkish lira is now roughly 4% lower than a year ago, a much smaller on-year decline than seen earlier this year.

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

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