[Istanbul 12th Reuters]-The Turkish Central Bank decided to reduce the one-week repo rate <TRINT = ECI> of policy interest rate by 325 basis points (bp) to 16.5% on the 12th. Aiming to recover from last year's currency crisis and escape from the recession, the rate cut was aggressive following the previous July.
In July, the Turkish central bank decided to cut interest rates for the first time in about four and a half years, reducing the weekly repo rate by 425 bp from 24.00% to 19.75%. With this measure, interest rate cuts totaled 750 bp.
According to a survey conducted by Reuters for economists on the 11th, the expected median rate cut was 250 bp. However, before the decision was announced, interest rate cuts of 300-400bp were expected in the swap market.
The central bank in a statement mentions the decline in domestic inflation and global monetary easing trends. "The current monetary policy stance is largely consistent with the expected disinflation path." In addition, they also indicated that the outlook for inflation had "significantly decreased" in August.
The central bank forecasted that inflation at the end of the year would be 13.9% in July, but this time it expressed a view that it would be “slightly” below this level. He expressed his view that “careful” monetary policy would be needed.
Morgan Stanley's Ercan Ergzel pointed out that the central bank statement shows that future rate cuts will be limited. At the next meeting on October 24, a 75 bp rate cut was decided, and the expectation that the weekly repo rate would be 15.75% at the end of the year was unchanged. It will be suppressed compared to it. "
Following the announcement of the central bank, Turkish lira <TRYTOM = D3> rose to 1 dollar = 5.6825 lira. The rate cut was not as large as expected in the swap market, which is about 1% higher than the previous day.