A Further Adjustment Made to Turkish Monetary Policy Settings

March 26, 2013

Officials at the Central Bank of the Republic of Turkey cut the overnight lending rate to 7.5% from 8.5% but left the 5.5% one-week repo rate at 5.5%, the overnight borrowing rate at 4.5%, and reserve requirements at 11.5%.  The repo rate, which is the main indication of policy, has been 5.5% since a 25-basis point reduction last December.  There was also a 50-bp cut in August 2011.  Today’s cut of the overnight lending rate ramps up the size of the adjustment from cuts of 25 bps in January and February, and 50 bps last October and November.  The overnight lending rate was also reduced by 100 bps in February 2012 and 150 bps last September.  The overnight borrowing rate had been raised in August 2011 from 1.5% to 5.0%, then cut this year by 25 bps each in January and February.  In February 2013, the reserve requirement ratio was lifted to 11.5% from 11.1%. 

Turkish monetary officials have several objectives and maintain a number of policy tools to address its diverse needs such as containing capital flows, credit demand, the current account, upward pressure on the lira, and inflation while also promoting economic growth.  Today’s action narrows the lending-borrowing rate corridor and leaves such more symmetrically aligned with the repo rate.  Although above target, inflation subsided to 7.0% in February.  Turkish GDP rose only 1.6% between the third quarters of 2011 and 2012.

The next policy decision will be made in just three weeks.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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