In an announcement following a monetary policy committee meeting on Thursday, the bank signaled that the rate cuts would continue, albeit at a slower pace.
The latest rate cut contributed to the yield on the benchmark Aug. 3, 2011 bond to fall to 7.86 percent from Thursday's closing yield of 7.94 percent prior to the bank's rate cut. The interest rate cut marks the 10th cut the bank has made since it began cutting rates from 16.75 percent last November to try and stimulate the economy hit hard by the global economic crisis. This remains the steepest set of cuts made by any G-20 country. According to the government's most recent three-year economic plan, the economy will contract by 6 percent in 2009. The International Monetary Fund (IMF) has said it expects the contraction to be 6.5 percent.
Thursday evening's rate cut came as a surprise to few at the central bank; in its September meeting it suggested that unless there was significant macro improvement in the Turkish economy, cuts would continue. Most surveyed economists had also predicted that there would be a cut. “The cut was in line with our expectations,” Murat Berk, senior analyst at Yapıkredi Bank in İstanbul, told Today's Zaman, adding that the “overall tone of their message remains dovish” and that “the easing bias remains unchanged in our view.” But, he continued: “There were a couple of interesting changes in their speeches. First, the bank signaled that it will consider reducing the size of future rate cuts. Second, it talked about the cut in reserve requirements at banks.” Speaking on behalf of the bank, Berk said, “We think the bank's stance is supportive of local markets and the local bond markets.” He felt that the easing bias would continue to year's end.
Turkey's inflation rate for the month of September stood at 5.3 percent although the central bank targeted 7.5 percent. Yakin Cebeci, an economist from İstanbul JPMorgan Chase & Co., largely agreed with this outlook and was quoted in Bloomberg as saying Durmuş Yılmaz, Euromoney's central bank governor of the year, was “signaling the next cut may be smaller, so we're expecting to see at least one more cut of 25 basis points.” The Official Gazette announced on Friday that the central bank had lowered the local currency reserve requirement from 6 percent to 5 percent; experts believe that this could contribute to as much as TL 3.3 billion in extra liquidity being pumped into the banking system.
The news had only marginal impact on the value of the lira, which remained fairly unchanged during Friday trading. At the time Today's Zaman went to press the dollar was trading at TL 1.452. Meanwhile, the İstanbul Stock Exchange (İMKB) closed its morning session down 0.68 percent from yesterday's close.
Analysts point to the Constitutional Court ruling on withholding taxes, which will bring the amount of taxes paid on foreigners earnings in Turkish equities markets up from the present 0 percent to 10 percent as well as the government's announcement of a higher-than-expected budget deficit as being the primary culprits behind the market losing value, and not the interest rate cut or the reduction in the reserve requirement.
