- Officials brief economists in private meeting at Ankara HQ
- Bank says simpler rate policy it’s seeking is within reach
Turkey’s cycle of interest rate cuts is nearing an end as the simpler monetary policy officials have been working toward is within reach, Abdullah Yavas, a member of the central bank’s rate-setting committee, told economists.
After lowering the overnight lending rate four times in as many months to 9 percent -- including a 50-basis-point cut on Tuesday -- the bank sees smaller reductions in the key gauge ahead before they come to a halt, Yavas told economists in an 80-minute private meeting in Ankara on Wednesday, according to two people who attended.
The bank’s Monetary Policy Committee tapered its interest-rate corridor to its narrowest point with this week’s cut. The decision left the difference between the upper and lower of Turkey’s three benchmark interest rates at 175 basis points, the fewest since the system was introduced in 2010. Lower global volatility has diminished the need for a wider rates corridor, Governor Murat Cetinkaya said in April, pledging to complete simplification by narrowing it further.
“They implied there was another month or two of rate reductions until monetary policy is restored to a more normal setting -- i.e., completing the unwinding of the extraordinary conditions that were in place over recent years,” Nigel Rendell, a senior analyst at Medley Global Advisors LLC in London who was also at the meeting but didn’t comment on the likely scale of future rate cuts, said by e-mail.
Yavas said the width of the eventual interest-rate corridor could be around 150 to 200 basis points, according to the two other economists, who asked not to be named commenting on a private meeting. They described the briefing’s content in mobile-phone text messages sent during the presentation. The bank will either deliver a final cut of 25 basis points to the overnight lending rate or eventually change the repo rate from its current 7.5 percent, they said.
The central bank first signaled last year that it was studying how to abandon its policy framework, where the three-rate corridor is used to adjust monetary conditions on a daily basis. Cetinkaya said the aim was a single-benchmark policy with overnight lending and borrowing rates at equal distances to the one-week repurchase rate.
Yavas, whose position on the Monetary Policy Committee expires next year, is one of only three members to have also served under former Governor Erdem Basci, with the others replaced as their terms ended. The committee has been under government pressure to boost growth with lower interest rates.
Yavas said the bank didn’t have a pre-set rate action for next month and that it would base its decision on the outlook for global markets and inflation instead of relying solely on current price data, said the two economists who asked not to be named.
The lira strengthened after news of the meeting emerged, and traded 0.5 percent higher at 2.8952 per dollar at 4:05 p.m. in Istanbul.