Turkey: Central Bank narrows interest rate corridor
September 18, 2012
At its 18 September meeting, the Central Bank of the Republic of Turkey (CBRT) left the one-week policy rate unchanged at 5.75%. The Central Bank also held the overnight borrowing rate steady at 5.00%, but lowered the overnight lending rate by 150 basis points to 10.00% (9.50% for primary dealers), thus narrowing the interest rate corridor that defines the Bank's monetary policy. The decision was widely expected by the market. The Bank reiterated that the rebalancing process between external and domestic demand continues as projected, with domestic demand growing 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 improve gradually". Regarding price developments, the Central Bank expects "the fall in inflation to become more evident in the last quarter of the year". Monetary authorities, however, warned that "a cautious stance regarding pricing behaviour is warranted" given recent increases in energy prices and the fact that inflation will remain above the Bank's target for some time. The Bank explained that the rate cut would support financial stability and maintained a dovish stance, stating that "if deemed necessary, a measured step in the same direction may be taken in the forthcoming period".