Turkish Central Bank lowers interest rates 325 bps

Duvar English / ISTANBUL

The Turkish Central Bank on Sept. 12 lowered its policy rate (one-week repo rate) 325 basis points to 16.5 percent from 19.75 percent, marking a second rate cut in two months.

In a statement released after the meeting of the Monetary Policy Committee (MPC) on Sept. 11, the bank said recently released data indicate that moderate recovery in economic activity continues.

The Turkish Lira firmed against the U.S dollar after the bankannounced its rate decision. The local currency gained more than 1percent against the greenback to trade below 5.70 per dollar.

In the statement, the bank noted that the contribution of netexports to economic growth continued, while investment demandremained weak and the contribution of private consumption graduallyincreased in the first half of the year.

The statement underlined strong tourism revenues which support theeconomic activity through direct and indirect channels.

“Looking forward, net exports are expected to contribute toeconomic growth and the gradual recovery is likely to continue withthe help of the disinflation trend and the improvement in financialconditions.”

The bank is confident that the current account balance willmaintain its improving trend.

The latest data showed that the country’s current accountdeficit narrowed 82 percent on an annual basis to $548 milliondeficit this June.

Better inflation outlook

The bank also stressed the improvement in the inflation outlook.The annual inflation rate eased to 15 percent in August from 16.65percent in the previous month.

Over the past decade, annual inflation saw its lowest level at3.99 percent in March 2011, and it peaked at 25.24 percent lastOctober.

“In addition to the stable course of the Turkish Lira,improvement in inflation expectations and mild domestic demandconditions supported the disinflation in core indicators. Domesticdemand conditions and the level of monetary tightness continue tosupport disinflation,” the statement said.

According to the bank, the current monetary policy stance, to alarge part, is consistent with the projected disinflation path.
“Theextent of the monetary tightness will be determined by consideringthe indicators of the underlying inflation trend to ensure thecontinuation of the disinflation process.”

The bank reiterated that it will continue to use all availableinstruments in pursuit of the price stability and financial stabilityobjectives.

“It should be emphasized that any new data or information maylead the Committee to revise its stance,” it added.