Turkish Central Bank Rates to Stay Low For A Long Period of Time

January 14, 2010

After keeping the key overnight borrowing rate and lending rate at 6.5% and 9.0%, respectively, the Central Bank of the Republic of Turkey released a statement that predicted these “low” rates would be retained for “a long period of time.”  A recent acceleration of inflation to an on-year 6.5% in December was blamed on base effects and higher taxes, and officials assert that the lower core rate is consistent with medium-term price targets and that total inflation will begin to trend lower after a few more months.  Turkish rates were cut over 10 percentage points between November 2008 and November 2009.  The borrowing rate had crested at 16.75% before getting reduced by 50 bps in 11/08, 125 bps in 12/08, 200 bps in January 2009, 150 bps in February, 100 bps in March, 75 bps in April, by 50 bps in each of the next six months, and by 25 bps in November 2009.  Aside from the confidence that inflation will hit its medium-term target, officials justify not raising rates anytime soon because of the uncertain strength of Turkey’s recovery.  Even though industrial production in October was 6.5% greater than twelve months earlier, real GDP in 3Q posted an on-year decline of 3.3%.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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