The Central Bank of the Republic of Turkey (CBRT) cut the overnight lending rate, the ceiling of the interest rate corridor, by 100 basis points to 7.50 percent. The central bank, which started narrowing the corridor in September last year, left the overnight borrowing rate, the floor of the rate corridor, unchanged at 4.50 percent.
The central bank also cut the lending rate at the late liquidity window by 100 basis points to 10.50 percent but kept the borrowing rate steady at zero percent.
Last month the CBRT cut both the overnight lending and borrowing rates by 25 basis points but tightened the reserve requirements to slow down the growth of credit from capital inflows that is putting upward pressure on the Turkish lira.
The CBRT said domestic demand was recovering in a healthy manner and exports remained strong despite weak global growth.
Given the uncertain global environment, the central bank said it would remain flexible in both directions and the amount of funding to markets would be adjusted upward or downward when necessary.
In light of the slowdown in global demand and commodity prices, there is a reduced risk of inflation, the CBRT said, adding that it would closely monitor domestic demand and prices.
Turkey's inflation rate eased to 7.03 percent in February, down from 7.31 percent in January.
The central bank targets annual inflation of 5.0 percent in 2013, the same as in 2012 when inflation averaged 6.2 percent, and has said it expects inflation to ease this year.
Turkey's Gross Domestic Product expanded by a slight 0.2 percent in the third quarter from the second for annual growth of 1.6 percent, down from a rate of 3.2 percent in the second quarter.
The economy is estimated to have expanded by 2.5 percent last year, down from 8.5 percent in 2011. The central bank forecasts 2013 growth of 4 percent or higher.
Turkey's overnight rates have been coming down for the last decade. In 2002 the borrowing rate was 57 percent and the lending rate 62 percent, but in mid-2011 the CBRT raised the rates.Last year the bank started cutting the lending rate from 12.50 percent while keeping the borrowing rate unchanged at 5.0 percent.
In the first three months of this year, the CBRT has cut overnight lending rate by 150 basis points
and the overnight borrowing rate by 50 basis points.
While narrowing and shifting the interest rate corridor downward last year, the CBRT kept the benchmark one-week repo rate steady until December when it was cut by 25 basis points, the first cut since August 2011.