Tuesday, December 18, 2012

Turkey cuts rate 25 bps to 5.5% on lower inflation, growth

 Turkey's central bank cut its benchmark one-week repurchase rate by 25 basis points to 5.5 percent due to lower inflation and slower economic growth and but kept its short term rates steady.
    The Central Bank of the Republic of Turkey has kept its policy rate steady since a cut in August 2011 but has narrowed its interest rate corridor several times this year to help stimulate lending.
    Last month the bank said it may cut the policy rate and in today's statement it said it may change the interest rate corridor if "necessary for financial stability in the coming period."
    The central bank has been trying to balance between slowing growth and keeping credit growth under control so it doesn't boost inflation at a time that it is been concerned over the potential inflow of hot money from advanced economies where interest rates are close to zero.
    The central bank said domestic demand remained moderate and exports were also on an upward trend despite the weaker global growth. Next year growth in domestic demand is expected to contribute more to overall growth.

    Turkey's Gross Domestic Product rose by only 0.2 percent in the third quarter from the second quarter for annual growth of 1.6 percent, down from 3.2 percent.
    The inflation rate fell to 6.4 percent in November, down from 7.8 percent, and the lowest level this year. The central bank targets inflation of 5.0 percent but has said it expects inflation to remain above its target for some time due to higher administered prices.
    The overnight borrowing rate, which forms the bottom of its interest rate corridor, was kept at 5 percent and the overnight lending the rate, the ceiling, was kept at 9.0 percent. The rate corridor was introduced in October last year and allows the central bank to vary rates daily.



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