Overnight Turkish Lending Rate Sliced by Another 50 Basis Points

November 20, 2012

The overnight lending – borrowing rate differential was reduced further.  Today’s lending rate cut of 50 basis points followed reductions of 50 bps in October and 150 bps in September.  All the while, the overnight borrowing rate has stayed at 5.0%, where such has been anchored since August 2011.  August 2011 was also the time of the last change in the benchmark one-week repo rate, a decline to 5.75% from 6.25%.  A statement released by Central Bank of Turkey officials reveals that officials may not be through narrowing the overnight interest differential via cuts in the lending rate and, more importantly, that the main policy rate, the one-week repo, might be reduced also in the future.

If deemed necessary for financial stability, a measured cut may be considered in the policy rate and the overnight borrowing rate in the forthcoming period.

On-year CPI inflation fell sharply last month to 7.8% from 9.2% in September but nonetheless remained above target.  Officials expect inflation to slow additionally because of sub-trend growth in aggregate demand.  “The Committee expects that year-end inflation will be lower than the forecast presented at the October Inflation Report, owing to the favorable course of unprocessed food prices.”  Separately, note was made that a rebalancing of increasing domestic demand but a shrinkage of the current account deficit is proceeding forward as desired. 

The last monthly monetary policy meeting of 2012 is scheduled for December 18.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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