Turkish Central Bank Cuts Rate Further

Posted on 17 December 2010

The Turkish Central Bank has again cut its rates as inflation continues to slow in the rapidly growing economy.

The bank said in an emailed statement that it was reducing its one week repo lending rate by 0.5 percentage points, bringing it to a record low.

Recently the banks Deputy Governor Erdem Basci, who is widely expected to succeed current governor Durmus Yilmaz, published a paper on the banks website arguing that lowering rates and increasing reserve requirements imposed on banks was the best way to curtail the widening current account deficit in Turkey as the economy expands rapidly.

The changes are designed to bolster financial stability in the face of a “widening current-account gap and growing credit expansion,” said the emailed statement on the decision to reduce rates.

“It’s clear that price stability is no longer the bank’s chief concern, it’s now interested in wider financial stability,” Inan Demir, chief economist at Finansbank AS in Istanbul, said in a telephone interview. “With inflation likely to decline in the months ahead, we could expect further cuts.”

The central bank’s statement provided no guidance for the future of rates. The bank has decided that a “low policy rate, a wider rates corridor and higher required reserve requirements are a suitable policy mix,” it said.

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