UPDATE – Turkish Central Bank lowers interest rates by 50bps

The Turkish Central Bank on Thursday lowered its one-week repo rate by 50 base points, in line with market expectation.

A statement said the bank’s Monetary Policy Committee had decided to reduce the policy from 8.75% to 8.25%.

It pointed out that economic activity had started to weaken in mid-March due to the effects of the coronavirus on external trade, tourism and domestic demand.

“While the weakening in economic activity became more pronounced in April, high-frequency indicators for the first half of May display signs of bottoming-out following the steps taken towards partial normalization,” read the statement.

Stressing that uncertainties regarding global economic recovery remain high, the bank said it is closely watching normalization steps being taken by several countries.

The bank also said international commodity prices had affected inflation outlook favorably, despite the depreciation of the Turkish lira.

“While the rise in unit costs resulting from declining production and sales is closely monitored, the disinflationary effects of aggregate demand conditions are estimated to have increased,” read the statement.

It said “demand-driven disinflationary effects will be more prevalent in the second half of the year”, but consumer inflation could be slightly higher in the short-term “due to seasonal and pandemic-related effects on food prices.”

“Accordingly, considering all factors affecting the inflation outlook, the Committee decided to make a measured cut in the policy rate,” the statement said.

In April, amid coronavirus fears, the Central Bank cut its interest rate by a full point to 8.75% from 9.75%.

Since the beginning of this year, the bank has cut the rate by a total of 375 basis points.

In 2019, the bank reduced the rate gradually by 1,200 basis points to 12% from 24%.

According to Anadolu Agency’s survey on Monday, a group of 17 economists expected a drop in a one-week repo rate with a median of 50 base points.

 

Source: Anadolu Agency