50 Basis Point Turkish Interest Rate Cut

June 16, 2009

The Central Bank of the Republic of Turkey sliced another 50 basis points off its borrowing and lending rates to 8.75% and 11.25%, respectively.  There has been a reduction in every month since November, and the cumulative drop in central bank rates now stands at 800 basis points.  Those in April and May had been by 75 basis points and 50 basis points, and many analysts were anticipating a move this month of only 25 basis points.  Officials have also expanded to three months the maturity of repos the central bank will be undertaking.

Today’s easing will not be Turkey’s last of this cycle.  A statement released by the central bank envisages more reductions but at a more “measured” pace in the future.  Export demand continues to be weak, and business investment is still declining.  The labor market, where the jobless rate has climbed to 16.1%, is not expected to get better, and inflation, where the CPI’s 12-month drop has been halved to 5.2% over the past year, is “expected to remain at low levels in the foreseeable future,” notwithstanding a possible June uptick caused by tax increases and base effects.  Real GDP and industrial production show on-year declines of 6.4% and 18.5%.  After getting crushed previously, the Turkish lira has recovered 12% against the dollar since early March, and the current account deficit is relatively manageable at some 1.3% of GDP. 

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


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