Central Bank cuts upper band of interest rate corridor by 25 base points


The Central Bank of the Republic of Turkey (CBRT) cut the upper band of the interest rate corridor (marginal funding rate) by 25 base points from 8.5 percent to 8.25 percent at the Monetary Policy Board (PPK) meeting on Thursday.

This was the seventh decrease in a row by the CBRT, in which the upper band was cut by a total of 250 basis points.

The late liquidity window interest rates between 4 p.m. to 5 p.m. were also decreased to 9.75 percent from 10 percent.

The overnight lending rate, which is the rate at which banks borrow from the Central Bank overnight, went from 8.50 percent to 8.25 percent. However, Turkey's overnight borrowing rate, under which banks lend or deposit money to the Central Bank, remained unchanged at 7.25 percent.

The benchmark one-week repo rate, known as policy rate, was also kept at 7.5 percent, the bank said.

The lower band of the interest rate corridor was kept unchanged at 7.25 percent, which meant the narrowest interest rate corridor ever.

The bank said in a statement that recent data and indicators regarding the third quarter show a deceleration in Turkey's economic activity and that current financial conditions are tight.

"While developments in tourism revenues will have a negative impact in the short run, the lagged effects of the developments in the terms of trade and the moderate course of consumer loans will continue to contribute to the improvement in the current account balance," the statement said.

"The slowdown in aggregate demand contributes to the gradual fall in core inflation. With the help from falling food prices, headline inflation is expected to display a decline in the short term," it added.

The recent tax adjustment in fuel prices and other cost factors limit the improvement in inflation and necessitate the maintenance of a cautious monetary policy stance, the bank said.

In light of these assessments, and considering its contribution to the effectiveness of monetary policy, the bank decided to take measured and cautious steps towards simplification.

The bank added its future monetary policy decisions would depend on the inflation outlook.

"Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the cautious monetary policy stance will be maintained," it said.

All but one of the 15 economists who attended the Anadolu Agency Finance Poll expected the upper band rate to be lowered to 8.25 from 8.50, while one economist expects a cut by 50 base points.

No change was expected in other short-term rates, according to the poll results announced Tuesday.

Turkey's economy has suffered this year in the face of a string of terrorist attacks and uncertainty following the failed coup on July 15 that saw more than 270 people killed. Tourism, a key component of the Turkish economy, has taken a hard hit.

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