Turkish Central Bank cuts top end of rate corridor, stresses ‘measured simplification’

Turkish Central Bank cuts top end of rate corridor, stresses ‘measured simplification’

Turkish Central Bank cuts top end of rate corridor, stresses ‘measured simplification’ The Central Bank cut the top end of its interest rate corridor by an expected 50 basis points on May 24, its third straight month of cutting, emphasizing measured steps toward simplification amid rising global violability. 

The Bank lowered the overnight lending rate - the highest of the multiple rates it uses to set policy - to 9.5 percent. However, it left its benchmark rate on hold at 7.5 percent. The bank also kept is overnight borrowing rate steady at 7.25 percent. 

This marks the third straight month of easing and the second cut under Governor Murat Çetinkaya, who took over his post in April.

“Recently, global volatility has increased to some extent. The committee assesses that the tight monetary policy stance, the cautious macro-prudential policies and the effective use of the policy instruments laid out in the road map published in August 2015 increase the resilience of the economy against shocks. In this respect, the committee decided to take a measured step towards simplification,” said the Bank in a press release. 

It noted that loan growth in Turkey was continuing at a reasonable rate in response to the tight monetary policy stance and macro-prudential measures. 

“Favorable developments in the terms of trade and the moderate course of consumer loans contribute to the improvement in the current account balance. While domestic demand continues to have a positive impact on growth, demand from European Union economies continues to support exports. Accordingly economic activity displays a moderate and stable course of growth. The committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly,” it added. 

Eleven out of 18 economists in a Reuters poll had expected a 50 basis point cut in the upper band. 

Inflation cooled to 6.57 percent last month, its lowest in almost three years, although it still remains well above the Central Bank’s 5 percent target.

“Recently, inflation has displayed a marked decline, mainly due to unprocessed food prices. But improvement in the underlying core inflation trend remains limited, necessitating the maintenance of a tight liquidity stance,” stated the Bank.