Turkey Central Bank expected to cut rates
2012-09-18 12:03:08
Turkey's central bank is expected to cut overnight lending rates Tuesday to revive the country's slowing economy. Seven of 10 economists surveyed by Dow Jones Newswires expect the bank's rate setters to cut overnight lending rate by 1 percentage point to 10.5%. It would be the first reduction since February. Three of the 10 forecast a 0.5 percentage-point cut. All see the central bank leaving its benchmark one-week repo rate at 5.75% and borrowing rate at 5%.
Turkey's economy grew an annual 2.9% in the second quarter, compared with 3.3% in the first. The government aim is 4% expansion this year. Growth last year of 8.5% trailed only China and Argentina among the world's biggest economies.
Economy Minister Zafer Caglayan said last week it is "becoming difficult" to achieve the 4% target and urged the central bank to lower rates.
The bank aims are to support the lira and control inflation. To do so it daily varies funding costs between two boundaries. Average lending rates this month have been about 6.2%, falling from as high as 10.2% in June. This rates-corridor strategy has been widely criticized for creating uncertainty over borrowing costs and lacking transparency.
The bank may have more scope to act after Turkey's inflation rate slowed to 8.88% in August. It shot up to double digits for the first time in three years in December as the lira weakened against the dollar. Lower rates can typically boost spending and push up price rises while higher rates can curb inflation.
Expectations of a central bank rate cut have driven down yields on benchmark government bonds. The lira has gained about 5% against the dollar this year to trade at 1.7973 lira at 0525 ET. The benchmark two-year bond yields traded at 7.29% on Monday.