CBT likely to lower overnight lending rate by 50bps

In today’s Turkish central bank’s meeting, the MPC is expected to lower the overnight lending rate by 50bps to 10%, according to Commerzbank. Meanwhile, the central bank is unlikely to change other policy rates. Turkish market interest rates have dropped sharply since the US Fed became less hawkish in the first quarter. This has therefore removed the pressure from the Turkish lira.

Therefore, it is not very significant to markets whether the CBT reduces the policy rate or keeps it on hold. Nevertheless, cutting rates to narrow the rate corridor is not of much relevance. The basis seems to be to bring market interest rates closer to the corridor’s mid-point, noted Commerzbank. The overnight lending rate in Turkey is used as an ‘insurance policy’ that permits the central bank to tighten monetary policy for a brief period of time when the Turkish lira is under risk.