Turkish Interest Rate Cuts

April 16, 2013

This month’s interest rate meeting at the Central Reserve Bank of Turkey yielded a statement that cut all three interest rates by 50 basis points.  The one-week repo rate, the main policy signal, had bee cut previously by 50 basis points in August 2011 and by another 25 bps in December 2012, now becomes 5.0% after this first change of 2013.  The overnight money rate range falls to 4-7% from 4.5-7.5%.  After peaking at 12.5% in October 2011, the overnight lending rate was reduced by 100 bps in February 2012, 150 bps in September, 50 bps in October, 50 bps in November, 25 bps in January 2013, 25 bps in February and 100 bps last month, today’s cut to 7.0% from 7.5% constitutes the 7th reduction in the last eight months, the sole exception being December.  The overnight borrowing rate was hiked 350 bps to 5.0% in August 2011 and left at that level until cuts of 25 bps each in January and February of 2013.  Today’s cut to 4.0% from 4.5% is the third easing this year and preserves a 300 basis point overnight rate corridor.

Turkish GDP growth slowed last year, but domestic demand is reviving.  The current account deficit has widened in response, but should crest because of fallen commodity prices recently.  CPI inflation of 7.3% is elevated on higher food costs but projected to be contained.  Officials promise in the statement to monitor the effect of accelerating capital inflows and faster growth in domestic demand on inflation.

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



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