Turkey: TCMB resumes rate cuts in February
On 23 February, the Central Bank of the Republic of Turkey (TCMB) delivered a 50 basis point cut, bringing the one-week repo rate to 8.50%. The move follows a devastating earthquake on 6 February in southeast Turkey that took tens of thousands of lives, dealt widespread infrastructure damage and hampered economic activity.
In its press release, the Bank noted that available data before the earthquake pointed to an improvement in growth dynamics. Regarding the earthquake, the TCMB expects it to weigh on activity in the short term. Accordingly, it decided to lower rates in a bid to support the recovery and preserve growth momentum. Positively, the Bank does not foresee permanent effects on the economy.
The Bank’s forward guidance was somewhat dovish. It stated that rates are “adequate to support the necessary recovery in the aftermath of the earthquake”. Meanwhile, the Bank reiterated its commitment to the liraization strategy, which aims to ensure that the lira dominates the financial system through banking regulations.
Going forward, our panelists will closely monitor the evolution of macroprudential measures in addition to interest rate changes.
Muhammet Mercan, chief economist at ING, commented on the outlook:
“Overall, the [TCMB] has hinted that interest rate cuts will not continue as a series, while we can expect further macro-prudential measures to maintain favourable financial conditions with the objective of minimising the effects of the earthquakes.”
Meanwhile, analysts at Fitch Solutions said:
“We now believe that the [TCMB] will cut rates by a further 50bps to 8.00% in its next meeting. We will be carefully watching for additional macroprudential policy introductions, which have been released regularly over recent months. Many of these are essentially capital controls and their introduction is all the more likely as rates continue to fall in order to prevent further Turkish lira depreciation.”
The next meeting is scheduled for 23 March.