Turkey bank unexpectedly cuts overnight lending rate
March 24 2016 09:34 PM
KRISHNAN
Turkey’s central bank headquarters is seen in Ankara. The bank reduced the overnight lending rate by 25 basis points to 10.5%, but maintained its one-week repo and overnight borrowing rates at 7.5% and 7.25% respectively, according to a statement posted on the bank’s website.

Bloomberg/Ankara

Turkey’s central bank cut its overnight lending rate in a surprise decision that followed a chorus of calls from top politicians for steps to help revive the economy with lower borrowing costs.
The bank reduced the overnight lending rate by 25 basis points to 10.5%. Only three out of 19 economists in a Bloomberg survey predicted the move, with the median estimate calling for no change.
The bank maintained its one-week repo and overnight borrowing rates at 7.5% and 7.25% respectively, according to a statement posted on the bank’s website.
The central bank said the reduction marked the first step in meeting its earlier pledge to abandon a three-rate interest rate corridor in favour of a single-rate policy. While policy makers first signalled they would move to simplify policy once the US Federal Reserve raised interest rates, they later put off the decision, citing the rise in global volatility following the US rate increase in December.
Recent increased appetite for lira assets may have persuaded the bank to begin narrowing the corridor, according to Piotr Matys, a London-based emerging markets FX strategist at Rabobank, who had predicted a 50-basis-point cut to the overnight lending rate.
“The external environment and sentiment towards the Turkish lira have improved sufficiently to seriously consider the possibility that the central bank” may finally narrow the interest rate corridor in order to simplify its unorthodox monetary policy, Matys said in an e-mailed note before the decision.
The lira trimmed losses seen immediately after the decision and was trading 0.2% lower at 2.8806 per dollar at 2.13pm in Istanbul.
President Recep Tayyip Erdogan, his top advisers and a former economy minister, have all over the last week called on the bank to lower the overnight rate, saying high rates were slowing growth and fuelling inflation.
The bank said in its statement that a drop in volatility in global financial markets was behind its decision to lower the overnight gauge. “Recently, global volatility has eased to some extent,” it said in the statement. Policies since last August have reduced “the need for a wide interest-rate corridor,” it said.




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