Central Bank of Turkey cuts key rate by 25bps, to maintain cautious monetary policy stance

The Central Bank of Turkey lowered its overnight lending rate by 25 basis points during its meeting today in an attempt to stimulate the ailing economy. The Monetary Policy Committee decided to lower the overnight lending rate to 8.25 percent, while the borrowing rate has been maintained at 7.25 percent. It also kept the one-week repo rate unchanged at 7.5 percent.

According to the central bank, the recently released data and indicators about the third quarter showed a slowdown in the economic activity. The Monetary Policy Committee assesses that the present financial conditions are tight. The developments in the tourism revenues would be adversely affecting the economy in the short run, but the lagged impacts of the developments in the terms of trade and the moderate course of consumer loans would keep on adding to the rebound in the current account balance.

The central bank stated that exports of the country are being underpinned by demand from the European Union economies. Given the supportive measures and incentives offered recently, the CBT expects domestic demand to rebound from the fourth quarter of this year.

Meanwhile, the deceleration in aggregate demand added to the gradual decline in core inflation. Given the declining food prices, headline inflation is likely to fall in the short-term.

According to the central bank’s statement, future monetary policy decision would depend on the outlook of inflation. Taking the inflation expectations, pricing behaviour and course of other factors impacting inflation into account, the cautious monetary policy stance would be maintained, stated the central bank statement.