Turkish Centralbank cuts rates 25 bps as expected
Posted by meb at February 15th, 2008
The Turkish Central Bank cut its benchmark interest rates by 25 basis points on Thursday, as forecast, and said monetary policy was supporting a fall in inflation despite recent rate cuts.
Economists said the statement indicated the bank was likely to keep cutting interest rates in the coming months, but with a close eye on inflation developments. The bank cut its benchmark borrowing rate by 25 basis points to 15.25 percent, and lowered the benchmark lending rate to 19.25 percent from 19.50 percent.
Recently announced data showed moderate economic growth was continuing and the effects of the problems in global credit markets were limiting domestic demand, the central bank said. ”It is expected that the overall demand conditions in the coming period will continue to support the falling trend in inflation,” the bank said.
The bank did not seem overly worried that inflation remained above its target and was likely to continue easing rates in the coming months, said Danske Bank senior analyst Lars Christensen. “That said, the central bank is probably getting closer to pausing in its easing cycle – or at least slowing down the speed of monetary easing in the coming months,” he said.
In a Reuters poll of 20 analysts, 16 forecast the central bank would cut rates by 25 basis points while the remaining four predicted it would leave rates unchanged. The central bank reiterated that the timing of further rate cuts would depend on global market conditions, foreign demand, fiscal policy and other factors which impact on the medium-term outlook.
Turkey’s interest rates remain among the highest in emerging markets and have helped to attract foreign capital that is vital against the background of a large current account deficit.
MORE SENSITIVE TO DATA
The bank said that excluding food and energy components inflation was calculated to be approaching 4 percent — the bank’s year-end target.
Finansbank economist Inan Demir said that was a dovish addition to the regular statement. ”In a more hawkish addition, the committee acknowledges that ongoing global uncertainties and risks regarding pricing behaviour render policy more ‘data dependent’,” he said.
While food and energy prices represent a risk, inflation was expected to keep falling in the medium term, the bank said.
In January, consumer prices rose 8.17 percent year-on-year having ended last year at 8.39 percent, more than twice the official target of 4 percent. The bank has also set an end-2008 inflation target of 4 percent.
Despite high inflation, the central bank started easing in September, since when it has reduced rates each month to slice a
combined 225 basis points off the borrowing rate.
source: Hurriyet
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