Turkish Monetary Policymakers Flag Risk of Future Ease

July 21, 2011

Policymakers at the Central Bank of the Republic of Turkey had cut their key interest rate by 1175 basis points from November 2008 to November 2009.  Last fall, a complicated form of tightening was initiated that permitted the one-week repo rate to drop by a further 75 basis points in two steps but also raised reserve requirements sharply and widened the interest rate corridor to a whopping 7.5 percentage points between an overnight lending rate of 9.0% and an overnight borrowing rate of 1.5%. 

Following this month’s meeting, the Monetary Policy Committee released a statement today that strikes a decisively more guarded tone, signaling an intent to narrow the rate corridor gradually if global risk aversion continues to rise and warning that all policy instruments may be loosened if global economic problems cause Turkish domestic demand to contract.  The statement expresses concern about global uncertainty and talks of a slowdown in consumption, moderating investment and continuing weak export demand.  Officials expect core inflation to settle back.

The next policy statement will be released on August 23rd.

Copyright 2011, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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