Turkish Central Bank cuts main interest rate by 50bps

By bne IntelliNews January 20, 2015

The Central Bank of Turkey lowered its main interest rate (one-week repo) by 50bps to 7.75% on January 20, citing slowing inflation and declining commodity prices. Increased political pressure, especially from President Recep Tayyip Erdogan, probably is another reason for the rate cut the Bank delivered. Erdogan, a vocal critic of the Central Bank, last week renewed his call for a rate cut.

The Central Bank held its overnight lending rate and overnight borrowing rate steady at 11.25%, and at 7.50%, respectively.

The tight monetary policy stance and macroprudential measures continue to have favourable impact on inflation, especially inflation excluding energy and food (core inflation) indicators, and inflation expectations, the Bank said in a statement released after the monetary policy committee meeting. Moreover, the Bank added, declining commodity prices, in particular oil prices, contribute to disinflation. In light of these positive developments, the Committee has decided on a measured cut in the one-week repo rate.

Under the current monetary policy stance, the Committee anticipates that inflation will decline to levels close to the target by mid-2015, the Bank said. Yet, a more persistent reduction in inflation necessitates a cautious approach in monetary policy, the Bank stressed. In this context, future monetary policy decisions will be conditional on the improvements in the inflation outlook, the Bank said, reiterating that inflation expectations, pricing behaviour and other factors that affect inflation will be closely monitored and the tight monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.

Here are the other highlights from the Central Bank’s January 20 statement:

*Loan growth continues at reasonable levels in response to the tight monetary policy stance and macroprudential measures.

*The favourable developments in terms of trade and the moderate course of consumer loans will contribute to the improvement in the current account balance

*External demand remains weak, while domestic demand contributes to growth moderately

*The implementation of the announced structural reforms would contribute to the potential growth significantly

Policy Rate (%)
Date one-week repo
May-2010 7.00
Dec-2010 6.50
Jan-2011 6.25
Aug-2011 5.75
Dec-2012 5.50
Apr-2013 5.00
May-2013 4.50
Jan-2014 10.00
May-2014 9.50
Jun-14 8.75
Jul-14 8.25
Jan-15 7.75
Source: Central Bank

Related Articles

Record decline in Turkish central bank’s gross forex reserves pushes holdings to $89.9bn

The Turkish central bank reported on December 7 that its gross forex reserves last week experienced a record drop, declining to $89.85bn on December 1 from $96.35bn a week earlier. ... more

EU governments reportedly agree to cut Turkey’s pre-accession funds

EU governments have agreed with the European Parliament to withdraw €105mn that would have gone to help finance political ... more

Mystery deepens over Zarrab's role in Iran sanctions case reverberating in Turkey

Reza Zarrab, the wealthy Turkish-Iranian entrepreneur who allegedly masterminded an extensive conspiracy to help Iran evade US sanctions will not stand trial in New York this week as scheduled, even ... more