Turkish Central Bank has decided to make a 0.25 percent reduction on the country’s interest rates after its Monetary Policy Committee met on Thursday.
The Marginal Funding Rate will be cut from 10.75 to 10.50 percent though the one-week repo rate has been kept at 7.50 percent and the borrowing rate has been kept at 7.25, according to a statement by the Monetary Policy Committee.
“Annual loan growth continues at reasonable rates in response to the tight monetary policy stance and macroprudential measures. The favorable developments in the terms of trade and the moderate course of consumer loans contribute to the improvement in the current account balance,” the statement underlined.
The bank has drawn attention to the fact that the European Union economies have increasingly continued to demand more exports from Turkey “despite elevated geopolitical risks in other export markets.”
The Bank has assessed that “structural reforms” will further push Turkey’s potential growth at a remarkable level if they have been implemented.
"Global volatility has recently eased to some extent. Moreover, with the use of the policy instruments laid out in the road map published in August 2015 effectively, the need for a wide interest rate corridor has been reduced," the statement said.
"In this respect, the committee decided to take a measured step towards simplification. However, improvement in the underlying core inflation trend remains limited, necessitating the maintenance of a tight liquidity stance," the statement added.
The move has previously been expected by most of the economists who have forecast a hold in rates and a simplification of the monetary policy structure as promised by the central bank in August.
"The Central bank needs to take care of core inflation trend, there is still an upward pressure there," said ALB Securities analyst Enver Erkan adding that "There is still a need of large interest rate corridor, so that the basic aim of monetary policy should continue, in order to make domestic markets less fragile to foreign shocks."
"If global economies’ negative trend continues until the end of the year, these kinds of steps could not be sustainable. We expect no market volatility, but the Turkish lira would be weaker against the dollar in the middle and long term," Erkan pointed out.
The Bank has also indicated that it could change its own tight monetary policy stance if new data or information requires to do so.