Turkish Central Bank Cuts Rates by Most in Four Years
Turkey’s central bank cut the benchmark interest rate by 1.25 percentage points, the largest rate reduction in four years, as it attempts to steer the economy away from recession.
The overnight borrowing rate was reduced to 15 percent, the bank in Ankara said in an e-mail today. Twelve of 13 economists surveyed by Bloomberg had forecast a half-point cut and one forecast a quarter-point. The bank will release minutes of the meeting within eight working days.
Central banks are lowering interest rates worldwide as falling commodity prices and a recession in the U.S., Japan and the euro region damp inflation. Turkey’s economic growth slowed to 0.5 percent in the third quarter, the slowest pace since it emerged from a financial crisis in 2001.
“We are in extreme times globally and the bank’s action reflects this,” said Tim Ash, chief of emerging markets research at Royal Bank of Scotland Plc in London. “They’ve clearly been very dovish for a long period of time.”
Today’s rate cut was the largest since December 2004, when the bank lowered the rate by two percentage points.
The lira weakened to 1.5017 to the dollar as of 7:22 p.m. in Istanbul after reaching a six-week high of 1.49 earlier.
The global credit crunch made it necessary to cut rates as part of measures to protect the economy, the bank said in the statement. The inflation rate will probably extend a recent decline, it added.
Slowing Inflation
Inflation eased to 10.8 percent in November, the slowest pace in five months, the statistics office said on Dec cheap pay day loans. 3. The bank is targeting inflation of 7.5 percent next year.
“I think they’ll continue cutting for the next few months,” said Yarkin Cebeci, an economist at JPMorgan Chase & Co. in Istanbul. “The bank is concerned about economic growth and it’s encouraged by the absence of any inflationary pressures.”
The economic slowdown and a weaker lira prompted the government to begin talks with the International Monetary Fund on a new economic program to replace a $10 billion accord that expired in May. A delegation from the fund is due in Ankara early next month.
Economic expansion will probably ease further in the fourth quarter as exports drop and domestic demand declines, Governor Durmus Yilmaz said on Dec. 16. Ahmet Akarli, an economist at Goldman Sachs, forecast on Dec. 15 that the $660 billion economy may shrink by 4.6 percent in the fourth quarter.
The central bank has taken a series of measures to help free up liquidity for lending by banks to businesses and consumers. On Dec. 5 it lowered the level of reserves banks must deposit against foreign currency accounts to 9 percent from 11 percent, freeing up $2.5 billion.
The central bank unexpectedly cut rates by a half point to 16.25 percent on Nov. 19 after oil prices fell. It had increased the rate by 1.5 percentage points in May, June and July.
Filed under: finance by Finance Boss