Turkish PM Davutoglu expects Central Bank to deliver rate cut

By bne IntelliNews January 28, 2015

He expects a rate cut decision at the Central Bank’s monetary policy committee (MPC) meeting, PM Ahmet Davutoglu said on January 28, adding that governor Basci’s comments that the Central Bank could call an early MPC meeting on February 4 to review interest rates, is a step in the right direction.

Central Bank governor Erdem Basci said on January 27 that the Bank may convene an extraordinary meeting to cut interest rates as early as next week if annual inflation declines more than 1pp in January to about 7%. Basci has been under pressure from the government to slash interest rates to bolster tepid economic growth ahead of the general elections later this year.

The Central Bank last week delivered a 50bps rate cut, reducing its main policy rate (one-week repo) to 7.75%, citing slowing inflation and declining commodity prices. The Bank held its overnight lending rate and overnight borrowing rate steady at 11.25%, and at 7.50%, respectively.

Following Basci’s comments, analysts have updated their rate cut predictions. Goldman Sachs said on January 27 that it revises its rate call to 6.0% by-mid 2015, which implies a cumulative rate cut of 175bp from current base rate of 7.75%. Local Oyak Securities says it anticipates another rate cut –probably around 75bp to 7%- in early February while Deniz Invest expects another 50bp cut.

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
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