Turkish Rate Cuts Nearing the End of the Line

November 19, 2009

As forewarned after the prior rate cut on October 15th, the Central Bank of the Republic of Turkey implemented its smallest overnight borrowing rate cut of the cycle, a 25-basis point reduction to 6.5%.  Twelve prior cuts added up to 1000 basis points and were distributed as follows: 50 bps in November 2008, 125 bps in December, 200 bps in January, 150 bps, 100 bps in March, 75 bps in April and 50 bps in each of the next six months.  The grand total drop from 16.75% to 6.50% puts Turkey at the top of the G-20 rate cut leader board.  Today’s statement from the central bank introduces another phrase modification to suggest that today’s cut was the last or near to the last in the streak.  It advises that future interest rate “decisions,” not cuts, will be contingent upon forthcoming economic data and developments.

In contrast to those less accommodative steps, the text of the statement accentuates the continuing weakness of Turkey’s economy, for instance indicating that underlying growth in 3Q09 was softer than in the second quarter.  The statement also predicts low inflation in the future rather than harping on greater-than-anticipated inflation last month, and finally the statement reassures investors that monetary policy will maintain “an easing bias for a long period of time.”  Like most emerging market currencies, the Turkish lira is some 12% stronger against the U.S. dollar than a year ago.

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


Comments are closed.