Thursday November 19, 05:57 PM
INSTANT VIEW 3-Turkish C.Bank cuts rates as expected
ANKARA, Nov 19 (Reuters) - Turkey's Central Bank (CBSU.PK - news) cut its benchmark overnight borrowing and lending rates by 25 basis points on Thursday. The bank cut the borrowing rate to 6.50 percent from 6.75 and cut the lending rate to 9.00 percent from 9.25.
FORECAST
In a Reuters poll of 19 banks and brokerages, all institutions expected a 25 basis point cut. Seven economists expect November (Frankfurt: A0Z24E - news) 's rate cut to be the final rate cut this year and 11 economists another 25 basis points rate cut. Some analysts believe rate cuts could continue in January 2010.
COMMENTARY
INAN DEMIR, FINANS INVEST
'The committee crucially notes that subsequent rate decisions -- rather than rate cuts -- will depend on data and developments. This does not strictly rule out another cut in December; yet we read this as a signal that the committee is now more inclined to put easing on hold unless economic data deteriorate in the coming months.
'In line with our expectation, the rate statement retains the easing bias on account of ongoing problems in the global economy and continuing uncertainties regarding the strength of the recovery. However, this more likely aims to discourage premature expectations of tightening rather than signalling an extension of easing cycle.
'Regarding future moves, we expect the bank to stay on hold until the second half of 2010. Despite the bank's baseline that sees an unchanged policy rate until end-2010, we reckon that the bank will have to hike by some 200 bps in the second half of the year, as we expect inflation to accelerate on the back of economic recovery, both domestic and global, and likely indirect tax hikes.'
YARKIN CEBECI, ECONOMIST, JP MORGAN
'As universally expected the CBRT cut its key policy rate 25bp to 6.5%. More importantly, the one-page evaluation note shows clearly that the Bank has become much more data dependent. The easing bias is maintained, but for the first time in 12 months, the CBRT has not used the phrase 'rate cuts'. Instead the Bank states that rate decisions will now depend on data and developments. This supports our view that today's cut was the last one of the series and the CBRT will now halt to gauge the cumulative impact of the rate cuts. The CBRT is still positive on the disinflation front and states that there could be base period related fluctuations but inflation will remain depressed thanks to low capacity usage.
However, we think that the CBRT is concerned about a possible credibility loss that further easing might lead to. In our view, the risk return calculation does not justify further cuts and the CBRT will remain on hold unless there is significant surprise in economic data.
OZGUR ALTUG, ECONOMIST, BGC PARTNERS
'In its short statement the bank strengthened its pessimistic view about the speed of economic recovery. The bank is now emphasizing that a concrete recovery in the labour market will take time and the speed of revival in domestic demand weakened in 3Q09 compared to 2Q09. In the previous meeting, these comments were just expectations of the bank, but this time the bank confirms that it was right about the weak state of domestic demand and labour market.
The bank reiterated that the monetary policy easing started to show its impact on the credit market.
Despite base-related fluctuations in annual CPI (NYSE: CPY - news) inflation in 1H10 the Bank continues to believe that inflation will remain low.
The most important sentence of the statement remained unchanged: The bank confirmed that the monetary policy easing bias should be maintained for a long time.
The bank also mentioned that next rate decision will depend on economic data and developments.
In our view, the short statement of the bank signalled that the bank will continue to cut its policy rates and unlike the market consensus we continue to expect the bank to bring down its borrowing rate to 6.25 percent from 6.50 percent next month. We expect another 25 bps rate cut in January, which will bring the overnight rate to 6.00 percent in end-January 2010.'
MANIK NARAIN, ECONOMIST, STANDARD CHARTERED (LSE: STAN.L - news)
'There is essentially nothing new in this month's comments from what we have seen before, and the committee hasn't identified any further negative trends. We think this will be the last rate cut, inflation bottomed in October. In the absence of any growth or inflation shocks in the next month we think this is it for now.'
NEIL SHEARING, CAPITAL ECONOMICS
'We're probably at the end of the cycle. Everything now will depend on incoming data. We agree with the Central Bank that the pace of recovery will be fairly fragile and there are holes in the road ahead. The Central Bank will retain its easing bias for another six months or so, and we may get the first hike at the end of next year, in the third or fourth quarter.
'The big risk is on the fiscal front. The government has a very large deficit that is financed by the banks. The question is how willing will the banks be to keep funding the government as the economy picks up, will they turn their attention to the private sector.
'The large falls in inflation have probably passed but it will remain below the target and is not an issue.'
MARKET REACTION
The lira firmed slightly to 1.4916 to the dollar following the interest rate announcement versus 1.4920 before the announcement. The lira closed at 1.4900 on the interbank market. The announcement came after bond and equity markets closed.
(Reporting by Ayla Jean Yackley and Alexandra Hudson) Keywords: TURKEY RATES/INSTANTVIEW 3
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