Central Bank discusses pace of rate cuts
Posted by meb at October 2nd, 2009
Turkey’s Central Bank said its monetary policy committee has discussed slowing the pace of an 11-month series of cuts to the benchmark interest rate.
The bank isn’t convinced by signs of economic recovery and decided to maintain its easing bias, it said in an e-mail statement of the minutes of the Sept. 17 meeting in Ankara.
Still, there’s a growing belief that the worst of the crisis has passed and “it’s appropriate to adopt a flexible policy and consider the possibility of slowing the reductions,” it said.
The bank lowered the benchmark rate by half a percentage point to a record 7.25 percent at the meeting, taking total reductions over the last 11 months to 9.5 percent, the biggest of any G-20 nation. Gross domestic product is likely to contract 6.5 percent this year, according to International Monetary Fund forecasts announced Thursday.
Considering the weak state of the economy, when committee meets Oct. 15, “we think that the bank is about to deliver another half-point rate cut” Özgür Altuğ, economist for BGC Partners in Istanbul, said in an e-mailed report. The bank is likely to cut the rate to 6.5 percent by year-end, he said.
Any recovery is likely to be slow and output will remain “below potential for some time,” keeping the inflation rate low, the bank said Thursday.
The bank’s inflation target for this year is 7.5 percent and its most recent survey of economists and businessmen forecasts a year-end rate of 5.7 percent. Consumer inflation in August slowed to 5.3 percent, close to May’s 39-year low of 5.2 percent.
Tax reductions on new cars and home appliances expired at the end of September, which is likely to add to inflation in October, the bank said.
There’s no sign of an improvement in the unemployment rate and a pick-up in the supply of bank lending “isn’t on its own enough to put an end to the easing process,” it said.
Meanwhile, Turkey’s inflation rate probably rose in September, an increase that won’t jeopardize the Central Bank’s year-end target or upset its plans to cut the benchmark interest rate. Inflation accelerated to 5.7 percent from 5.3 percent in August, according to the median estimate of eight economists surveyed by Bloomberg. The statistics agency will announce the data at 5 p.m. in Ankara today. The rate was 5.2 percent in May, the lowest since July 1970.
source: Hurriyet daily news
Related posts: