CBRT acknowledges decelerating growth, monetary easing likely to continue

The Central Bank of the Republic of Turkey lowered its overnight lending rate by 25 basis points during its meeting on Thursday as had been widely anticipated. The central bank kept other policy parameters unchanged.

The MPC statement was markedly dovish in that its first remark acknowledges that growth is noticeably decelerating which in turn is likely to dampen core inflation going forward. The recently released data and indicators about the third quarter showed a slowdown in the economic activity.

Given the declining food prices, headline inflation is likely to fall in the short-term. According to the central bank’s statement, future monetary policy decision would depend on the outlook of inflation. Taking the inflation expectations, pricing behaviour and course of other factors impacting inflation into account, the cautious monetary policy stance would be maintained.

"We expect a further 50bps RRR cut as well as continued easing of macro-prudential lending norms in the retail and credit card markets, as the government has already initiated. We expect CBT to adopt a single policy rate and to set it significantly lower than the current effective funding rate of near-8%." said Commerzbank in a report.