Turkey's Central Bank leaves room for more rate cuts

ANKARA

Turkish Central Bank aims to simplify its monetary policy as much as economic conditions will allow, the bank’s new Governor, Murat Cetinkaya, said Tuesday.

Addressing his first press conference to announce Turkey’s second inflation report, Cetinkaya said: “We took simplification steps in the monetary policy and will continue to do so as much as circumstances will allow.”

But, he warned, the simplification steps are not a one-directional move since it is closely linked to global economic conditions and local macro indicators.

On April 20, just after Cetinkaya took the helm, the bank’s monetary policy committee introduced a 50 basis-point rate cut to overnight lending rate, or the upper limit of interest rate corridor policy, which is deemed confusing by some financial experts and markets.

The bank in the same meeting also left the one-week repo rate at 7.5 percent and the overnight borrowing rate at 7.25 percent unchanged.

Despite the cut, Cetinkaya pointed out at the press conference, further cuts would be dependent on the inflation outlook.

“Monetary policy in the forthcoming period will be closely linked to inflation outlook. Taking inflation expectation, pricing behavior and other developments into account, we will maintain a tight monetary policy as long as required,” he said.

The bank left the year-end inflation forecast for 2016 and 2017 unchanged at 7.5 percent and 6 percent, respectively.

Cetinkaya said that moderation of uncertainties in Turkey from a year back is likely to boost local consumption through improvements in consumer and investor confidence.

Also, he added: “A decline in global volatility positively affects local financial conditions. In 2016, we expect local consumption to grow to an extent comparable to 2015.”

On April 11, Cetinkaya was appointed as the new governor of Turkey's Central Bank to replace Erdem Basci, who often had differences of opinion with government officials over monetary policy as the Turkish government favored lower rates to boost investment.