ANKARA: Turkey’s central bank Wednesday cut a key interest rate at the debut meeting of its new governor in a move aimed at reassuring skittish investors but that disappointed the government.
The bank said the overnight marginal funding rate was trimmed 50 basis points, as expected by analysts, to 10.0 percent from 10.50 percent. It left the one-week repurchasing rate unchanged at 7.5 percent, as also widely forecast.
The overnight borrowing rate, at which banks lend to each other at the end of the day, was kept at 7.25 percent.
Wednesday’s meeting had been a key test for brand new governor Murat Cetinkaya, amid concerns he would bow to political pressure to enact far deeper cuts.
“The fact that the central bank refrained from a larger cut indicates the governor will maintain a cautious approach, narrowing the rate corridor gradually, not aggressively,” Piotr Matys, emerging-market strategist at Rabobank, told AFP.
But William Jackson, senior emerging markets economist with Capital Economics, insisted “political pressure no doubt played a role” in Cetinkaya’s move, and warned “with the headline rate likely to edge down further in the coming months, several more cuts are likely.”
Cetinkaya, 40, who formally replaced Erdem Basci on Tuesday, was being watched closely to see if he could defend monetary policy from government interference.
Analysts had warned that, despite a stabilising lira and declining inflation, a deeper than 50 bps cut would have sounded alarm bells over political pressure on the central bank.
For Economy Minister Mustafa Elitas, the bank had not gone far enough. “I had expected the central bank to trigger excitement and the desire to make investments but it did not happen,” he was quoted as saying by Turkish media.
After the announcement, the lira strengthened, and was being traded at 2.8 to the dollar and 3.1 to the euro.
Gokce Celik, economist at Finansbank, said markets welcomed the fact the size of the cut had been “measured”.
But in a note to clients she said Finansbank “would much rather see” the bank utilise “the improved global liquidity conditions by accumulating reserves rather than cutting interest rates”.
Cetinkaya was previously deputy central bank governor and had watched as Basci repeatedly faced pressure from President Recep Tayyip Erdogan to cut interest rates.
The markets, initially fearful Erdogan would push for a loyalist to replace Basci at the helm, reacted well to the appointment of Cetinkaya, chosen from the heart of the monetary policy committee.
While Rabobank’s Matys said the honeymoon period was still in full swing, proved by the lira’s ascent, Jackson said in his note for Capital Economics that “judging by today’s meeting, new governor Murat Cetinkaya may be a little more dovish than we had thought”.
Erdogan has often leaned on the nominally independent central bank to trim rates to trigger growth and investments, prompting criticism from economists warning a dramatic cut would push up inflation.
Turkey’s gross domestic product (GDP) grew 4.0 percent in 2015, despite domestic crises — a boost for Erdogan’s government at a time when the country has been shaken by a string of attacks hurting its key tourism industry.
Erdogan did not react directly to Cetinkaya’s debut but vowed once more to achieve Turkey’s 2023 targets.
“We will not consider ourselves successful before bringing Turkey to one of the top 10 economies of the world,” he said in a ceremony. AFP