Turkish Central Bank signals rate cut, raises year-end inflation forecast

ISTANBUL

Turkey's central bank governor Erdem Başçı speaks at the presentation of the bank's quarterly inflation report on April 30. AA Photo

The Turkish Central Bank has signaled that an interest rate cut might be on the cards, despite revising its inflation forecast upward by one percentage point.

While all eyes are on the bank to see whether it will take heed of the government’s vigorous rate cut urge, Central Bank Gov. Erdem Başçı said “the next step may be a measured and gradual reduction in interest rates,” speaking at a meeting to present its quarterly inflation report on April 30.

The bank also raised its year-end inflation target to 7.6 percent from a previous forecast of 6.6 percent announced in its January report, indicating the bank’s view on the country’s inflation performance has not got better.

Başçı said “It looks like there is room for interest rate reductions only because of the decline in the risk premium.”

When asked about the timing of such a move, he said this should not be perceived as a series of rate cuts, so it is not right to give a specific time table.

Since hiking interest rates massively in January to save the Turkish Lira from its free fall, the bank has been pledging to maintain the tight monetary policy stance until seeing a significant improvement in the inflation outlook.

In the Monetary Policy Committee meeting on April 24, the bank held the kept the rates at the level it raised them to in January, with the overnight lending rate at 12.0 percent, the borrowing rate at 8.0 percent and the one-week repo rate at 10.0 percent.

The bank’s interest rate policy became a more heated object of curiosity after Prime Minister Recep Tayyip Erdoğan, a vocal opponent of high interest rates, urged the bank to cut rates after his ruling party’s strong showing in the March local elections, which he said had reduced political uncertainty.