Turkey’s central bank cut its overnight lending rate for a seventh month, maintaining the slower pace of easing adopted days after July’s failed coup attempt.
The bank lowered the rate by 25 basis points to 8.25%, matching the median estimate in a Bloomberg survey. The one-week repurchase and overnight borrowing rates were kept at 7.5% and 7.25% respectively, also in line with economists’ forecasts.
Governor Murat Cetinkaya trimmed the overnight rate by 50 basis points at three consecutive meetings before the attempted coup, then halved the pace of cuts in its aftermath amid greater volatility in financial markets. Consumer inflation slowed last month for the first time since April, giving policy makers more leeway to continue an easing cycle that’s now the longest since the central bank adopted its triple interest rate corridor in 2010.
A Turkstat report this month showed domestic demand – the main driver of Turkey’s economic growth – slowed in the second quarter compared with the previous period. Other indicators, including the Markit manufacturing PMI, show economic activity was further hit by July’s events.
The government said on Wednesday it will ease restrictions on borrowing to boost demand, including giving consumers more time to pay off some debt including credit card purchases. The new measures will spur growth but have a negative impact on the current-account deficit and inflation, Deputy Prime Minister Mehmet Simsek said in an interview with NTV television before the interest rate announcement.
While falling demand will help to limit inflation, the government’s decision to raise taxes on gasoline and diesel prices will offset the impact, and “thus necessitate the maintenance of a cautious monetary policy stance,” the central bank said in the statement.
Cetinkaya has said the rate cuts that began in March are part of policy makers’ plans to simplify monetary policy, by narrowing the gap between the overnight lending and borrowing rates that make up the upper and lower bands of Turkey’s interest rates corridor.
The lira strengthened 0.2% to 2.9498 per dollar at 2.30pm in Istanbul.