Posted on 14 February 2011
Turkey cuts interest rates to new low
Turkey’s central bank cut its benchmark interest rates to a record low on Tuesday in a bid to prop up the recession-hit economy and said more could be needed as it seeks to put the economy on track.
The bank’s monetary policy committee said it trimmed the borrowing and lending rates by 50 basis points to 7.75 and 10.25 percent respectively, saying that even though there were signs of partial economic improvement, it was yet unclear how strong they were.
Inflation, which reached 5.39 percent in July, will remain at low levels for a long time, making it necessary to maintain an easing bias for a long period, the policy committee said in a statement.
“The committee … envisages that further measured rate cuts will be necessary in the short term unless there is a robust recovery in the economic activity,” it added.
Turkey’s once-booming economy shrank by a record 13.8 percent in the first quarter, following a 6.2-percent contraction in the last quarter of 2008.
Analysts believe the first quarter will be the worst for the year and the figures should start to improve from the second quarter, following in the footsteps of a sluggish recovery in industrial output and capacity usage.
The central bank says the economy will return to growth only in the last quarter of 2009 and that recovery will start in mid-2010.
The Turkish government expects the economy to shrink 3.6 percent this year while the International Monetary Fund has said the contraction will be at least 5.0 percent.
Turkey has been in talks with the IMF for a fresh stand-by deal since a 10-billion-dollar program expired in May last year but the talks have been mired in delays.
Last week, Deputy Prime Minister Cemil Çicek said that Ankara would like to reach an agreement with the IMF before September.
19 August 19, 2009 Hurriyet Daily News