Turkey bank may cut rates 200 basis points this month, columnist says

Turkey’s central bank is set to extend a series of interest rate reductions this month, according to a leading columnist, who cited lower government expectations for inflation.

Monetary policymakers could cut the benchmark one-week lending rate by 200 basis points, or two percentage points, to 14.5 percent, Abdurrahman Yıldırım, a columnist for Habertürk news website, said on Tuesday.

The decrease, which the central bank would probably follow up on with a smaller cut in December, taking the benchmark to below 14 percent, would come after the government lowered its inflation forecast for the end of the year to 12 percent on Monday from a previous 15.9 percent, Yıldırım said.

“The central bank can comfortably lower interest rates to below 15 percent [this month] if inflation ends up at 12 percent by the end of the year,” he said. “The bank’s next meeting on rates is on Oct. 24. Of course, there may be other developments before then which could impact the decision, but when looking at expectations for inflation right now, it can lower rates by two percentage points.”

Turkey’s central bank, which forecasts year-end inflation of 13.9 percent, has cut borrowing costs for banks by a total of 750 basis points to 16.5 percent since July after inflation slowed to 15 percent in August from 25.2 percent in October last year, the highest level in a decade and a half. The government says inflation will slow to single digits in September and October.

The Turkish Statistical Institute will publish September inflation data on Thursday.

Turkey’s central bank should keep rates on hold to ensure that inflation doesn’t accelerate again and to bolster financial stability following last year’s currency crisis, the International Monetary Fund said in a report last week. The bank’s rate-cutting programme has been too aggressive, the IMF said.

The central bank will meet again to decide on rates on Dec. 12.

Recent reductions in interest rates on loans by the nation's banks, led by state-run lenders, will continue as the central bank lowers its rates further, Yıldırım said. All banks will be forced to reduce borrowing costs for their clients or they will shrink and lose market share, he said. Interest rates on mortgages are likely to fall the most, he said.