Turkey: Central Bank narrows interest rate corridor again
October 18, 2012
At its 18 October 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 50 basis points to 9.50% (9.00% for primary dealers), thus narrowing the interest rate corridor that defines the Bank's monetary policy for a second consecutive month. The decision was broadly in line with market expectations, although some analysts had anticipated a larger cut in the overnight lending rate. 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 decline gradually". Regarding price developments, the Central Bank expects "the fall in inflation to become more evident during the last quarter of the year". Monetary authorities, however, warned that "a cautious stance regarding pricing behaviour is warranted" as inflation will remain above the Bank's target for some time due to a recent increase in energy and administered prices. 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".