The Central Bank of Turkey on Thursday lowered the overnight borrowing rate for the second subsequent time after nearly seven months of keeping the borrowing rate unchanged, a decision which comes as domestic growth slows and inflation rates rise Today`s Zaman reported.
The overnight borrowing rate, which is the upper end of the bank's interest-rate corridor, was brought down to 9.5 percent from 10 percent in the Thursday decision, which comes after the bank lowered the rate last month from 11.5 percent to 10 percent last month. The bank kept the one-week repo rate unchanged at an all time low of 5.75 percent and the overnight borrowing rate steady at 5 percent.
The central bank can vary borrowing rates within the interest-rate corridor to combat inflation and or kick start economic growth. Central bank head Erdem Basci has in recent months kept that rate at the lower end of the corridor, with the present 5.75 percent rate a sharp decline from the 12 percent rate set in January.
The move comes as Turkey looks for a soft landing to transition from an 8.5 growth rate last year to a projected 3.2 percent in 2012. In 2011, 8.5 percent growth made Turkey the fastest-growing economy in Europe and second globally only to China, but a European debt crisis has made policy-makers wary that the boom may give way to recession amid slowing exports and consumer demand.
Finance Minister Mehmet Shimshek earlier this week acknowledged the impact that the debt crisis has had on Turkey's domestic markets, but defended the modest growth as "a reasonable figure when considering the ongoing troubles in Europe and elsewhere."
Turkey has also significantly reduced its worrying current account deficit (CAD) in recent months, with the CAD in October narrowing to $59 billion from $79 billion in the same month last year. That number is nevertheless still a major source of worry for Ankara, which has been hamstrung by energy imports that saw major price hikes this year. Turkey currently imports around 70 percent of its energy needs.
A more recent addition to the economy's woes has been the country's budget deficit, which registered TL 14.4 billion ($7.9 billion) in the January-September budget, a significant jump from the TL 234 million ($129 billion) surplus Turkish coffers saw last year.
Another worry for Turkey's economy has been the inflation rate, which registered 8.9 percent in August from 11 percent in April but looks set to worsen this year amid country-wide tax hikes on consumables and a 9.8 percent increase in the cost of natural gas and electricity. Those increases have led experts to expect the central bank will find it impossible to meet its already ambitious target of 5 percent inflation.
The bank's move could be looked at as a decision to prioritize jumpstarting growth over tackling inflation, however, and comes after Turkey's economy grew an underwhelming 2.9 percent in the second quarter.