(Before It's News)
Turkey's central bank once again lowered its overnight funding rate and late lending rates by 25 basis points while it retained its benchmark one-week repo rate as it took another “measured and cautious step toward simplification” of its monetary policy framework.
The Central Bank of the Republic of Turkey (CRT) also re-affirmed its guidance that future monetary policy decisions will depend on the outlook for inflation, and that a “cautious” policy stance will be maintained in light of inflation expectations, pricing behavior and “other factors” – viewed as a reference to the lira's exchange rate.
As expected, the CBRT cut the overnight funding rate to 8.25 percent from 8.50 percent and has now cut it by 250 basis points since March. The borrowing rate remained at 7.25 percent. The late liquidity lending rate was also cut by 25 points to 9.75 percent and the borrowing rate stayed at zero.
The benchmark one-week repo rate was left at 7.50 percent, unchanged since February 2015.
Turkey's inflation headline inflation rate eased to 8.05 percent in August from 8.79 percent in July and the central bank said slower demand and falling food prices should push down inflation.
However, a recent change in fuel taxes and other costs will limit any improvement in inflation and “thus necessitate the maintenance of a cautious monetary policy stance,” the CBRT said.
In its quarterly inflation report from July, the CBRT expects inflation to stabilize around its 5.0 percent target as of 2018 after easing to an average of 7.5 percent this year and 6.0 percent in 2017.
Inflation is seen fluctuating between 6.6 percent and 8.4 percent in the rest of this year.
The latest economic data showed a declaration in economic activity, with lower tourism revenues having a negative impact although demand from Europe still supports exports.
“With the supportive measures and incentives provided recently, domestic demand is expected to recover starting from the final quarter,” the CBRT said.
The number of tourists arriving in Turkey in July fell by 36.7 percent to 3.47 million from a year ago due to the failed coup attempt, terrorist attacks and tensions between Russia and Turkey.
The Central Bank of the Republic of Turkey issued the following statement:
“The Monetary Policy Committee (the Committee) has decided to set the short term interest rates as follows:
a) Overnight Interest Rates: Marginal Funding Rate has been reduced from 8.5 percent to 8.25 percent, and borrowing rate has been kept at 7.25 percent,
b) One-week repo rate has been kept at 7.5 percent,
c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate has been kept at 0 percent, and lending rate has been reduced from 10 percent to 9.75 percent.
Recently released data and indicators regarding the third quarter display a deceleration in the economic activity. The Committee assesses that current financial conditions are tight. While developments in tourism revenues will have a negative impact in the short run, the lagged effects of the developments in the terms of trade and the moderate course of consumer loans will continue to contribute to the improvement in the current account balance. Demand from the European Union economies continues to support exports. With the supportive measures and incentives provided recently, domestic demand is expected to recover starting from the final quarter. The Committee assesses that the implementation of the structural reforms would contribute to the potential growth significantly.
The slowdown in aggregate demand contributes to the gradual fall in core inflation. With the help from falling food prices, headline inflation is expected to display a decline in the short term. Yet, the recent tax adjustment in fuel prices and other cost factors limit the improvement in inflation and thus necessitate the maintenance of a cautious monetary policy stance.
In light of these assessments, and considering its contribution to the effectiveness of monetary policy, the Committee decided to take a measured and cautious step towards simplification.
Future monetary policy decisions will be conditional on the inflation outlook. Taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the cautious monetary policy stance will be maintained.
It should be emphasized that any new data or information may lead the Committee to revise its stance.
The summary of the Monetary Policy Committee Meeting will be released within five working days.”