Turkish Central bank cuts one-week repo rate to 9.5%, citing improvement in risk premiums.

By bne IntelliNews May 22, 2014

In a surprise move, the Central Bank of Turkey has cut the one-week repo rate to 9.5% from 10% while keeping the overnight borrowing and lending rates on hold at 12% and 8%, respectively. Most analysts had expected the Bank to keep its main rate unchanged at 10%. The surprise move came weeks after PM Recep Tayyip Erdogan called for a rate cut despite stubbornly high inflation. Erdogan, expected to compete in the presidential race in August and now struggling with the country’s deadliest industrial accident ever that killed 301 miners, does not want to see the economy slow down ahead of the polls.

With the recent decline in uncertainties and improvement in the risk premium indicators, market interest rates have fallen across all maturities and in this regard, the Monetary Police Committee (MPC) decided on a measured decrease in the one week funding rate, the Central Bank said in a statement released after the regular monthly MPC meeting on Thursday. The monetary policy stance will continue to be tight, the Bank said, adding that the tight monetary policy stance will be maintained until there is a significant improvement in the inflation outlook.

Recent data points to a modest course in private final domestic demand, and with the help of the recovery in foreign demand, the contribution of net exports to economic growth is expected to increase, the Bank stressed. Such a demand composition will support disinflation and will lead to a significant improvement in the current account deficit in 2014, the Bank added.

One week repo rate (%)
Date Lending rate
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
Source: Central Bank

Related Articles

Erdogan says he plans talks with lenders on cutting Turkish interest rates

Turkey's President Recep Tayyip Erdogan said on October 13 that he plans to hold talks with both public and private lenders on how to lower interest rates. He did not say, however, when those ... more

Turkey's Erdogan turns fire on US ambassador in diplomatic spat over arrest

Turkish President Recep Tayyip Erdogan has turned his fire on the US ambassador to Turkey for the ... more

Turkey-based Eurasian development bank ETDB signs memo to boost return to Iran

The Central Bank of Iran (CBI) and the Turkey-based ECO Trade and Development Bank (ETDB) have signed a memorandum on strengthening bilateral ties, the CBI said on October 10. ETDB is a Eurasian ... more