Turkey: Central Bank cuts lending rate for third consecutive month
November 20, 2012
At its 20 November meeting, the Central Bank of the Republic of Turkey (CBRT) left the one-week policy rate unchanged at 5.75%. The Bank also held the overnight borrowing rate steady at 5.00%, but lowered the overnight lending rate by 50 basis points to 9.00% (8.50% for primary dealers), thus narrowing the interest rate corridor that defines the Bank's monetary policy for a third consecutive month. The decision was broadly expected by the market. The Bank reiterated that the rebalancing process between external and domestic demand continues, with domestic demand rising at a moderate pace and exports expanding despite the weakening global outlook. Against this backdrop, the CBRT explained that "aggregate demand conditions support disinflation and the current account deficit continues to decline gradually". Regarding price developments, the Central Bank expects year-end inflation to be lower than previously forecasted owing to a more favourable evolution in unprocessed food prices. Monetary authorities, however, warned that they will continue to monitor the effect of the recent hike in administered and energy prices on the medium term inflation outlook. The Bank maintained a highly dovish stance, stating that "if deemed necessary for financial stability, a measured cut may be considered in the policy rate and the overnight borrowing rate in the forthcoming period".