Turkey Cuts Key Rate to 7.5%


Turkish central bank lowered its benchmark one-week repo rate by 25 bps to 7.5 percent in February as a temporary fall in inflation due to the global oil price plunge gave room for easing.

The overnight borrowing rate was cut by 25 bps to 7.25 percent and the overnight lending rate was lowered by 50 bps to 10.75 percent. The primary dealers' overnight borrowing rate was lowered by 50 bps to 10.25 percent. 

Turkey’s annual inflation rate fell to 7.24 percent in January from 8.17 percent in December, the lowest in 14 months.

The government has persistently called for the central bank to lower borrowing costs to boost economic growth since the main rate more than doubled in an emergency meeting in January of 2014. As a result, the rate was lowered by 50 bps to 7.75 percent at January 20th meeting. This cut proved insufficient, forcing the central bank to call for an extraordinary meeting to do more, but its plans were hampered by a drop in the Turkish lira.

Statement by the Central Bank of the Republic of Turkey:

Loan growth continues at reasonable levels in response to the tight monetary policy stance and macroprudential measures. The favorable developments in the terms of trade and the moderate course of consumer loans contribute to the improvement in the current account balance. External demand remains weak, while domestic demand contributes to growth moderately. The Committee assesses that the implementation of the announced structural reforms would contribute to the potential growth significantly.

The ongoing cautious monetary policy along with prudent fiscal and macroprudential policies are having a favorable impact on inflation, especially inflation excluding energy and food (core inflation indicators), and inflation expectations. The Committee anticipates that the core inflation will continue to decline. Yet, a more persistent reduction in inflation necessitates a cautious approach in monetary policy. Taking into account the elevated volatility in food and energy prices, the Committee decided to cut the interest rates at a measured scale.

Future monetary policy decisions will be conditional on the improvements in the inflation outlook. Inflation expectations, pricing behavior and other factors that affect inflation will be monitored closely and the cautious monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.


Turkey Cuts Key Rate to 7.5%


Central Bank of Turkey | Joana Taborda | joana.taborda@tradingeconomics.com
2/24/2015 1:28:44 PM