Turkey: Central Bank moves monetary policy corridor down for second consecutive month
February 19, 2013
At its 19 February meeting, the Central Bank of the Republic of Turkey (CBRT) left the one-week repo rate unchanged at 5.50%, in a move widely expected by market analysts. However, the Central Bank cut the overnight borrowing rate by 25 basis points to 4.50% and the overnight lending rate by the same magnitude to 8.50% (8.00% for primary dealers). This move did not catch analysts by surprise, as they had anticipated a second consecutive downward shift in the corridor that defines the CBRT monetary policy.
The Central Bank judged the move necessary as well as an increase in reserve requirements, as credit growth has accelerated significantly amid rising capital inflows. Once again, the Bank reiterated that the rebalancing process between external and domestic demand continues, with domestic demand growing at a moderate pace and exports expanding despite weak global activity. The Bank explained that "ongoing uncertainties regarding the global economy necessitate the monetary policy to remain flexible in both directions". Regarding price developments, the Central Bank stated that inflation will continue to fall despite a recent pick up in oil prices.