Turkey central bank to re-employ rates corridor - report

Turkey’s central bank will re-introduce a narrow, “symmetrical” interest rates corridor at which it funds banks, employing the one-week repo rate for the first time in 16 months, governor Murat Çetinkaya told Turkish bankers at a dinner on Sunday.

The corridor was introduced by Çetinkaya’s predecessor Erdem Basci. The measure will be announced officially in the coming days, according to BloombergHT television, a franchise of New York-based Bloomberg, which cited unidentified sources for  Çetinkaya’s remarks.

The central bank increased interest rates for its so-called late liquidity window, the only lending rate it currently employs actively, by 300 basis points to 16.5 percent last week in an emergency meeting after the lira slumped to a record low of 4.92 per dollar. The currency has since strengthened on the measure and due to improved sentiment towards emerging markets as oil prices eased.

The one-week repo rate is currently 8 percent. The central bank hasn’t lent to banks at that level since January last year. Bank officials are due to meet on June 7 to discuss interest rates.  Çetinkaya has pledged to simplify monetary policy, which currently relies on multiple rates.

Çetinkaya’s comments suggest that the new policy may be introduced at next week’s meeting, effectively reducing interest rates on some lending. But his assertion that the corridor will be narrow suggests that the one-week repo rate will increase as a result.

The measure would come ahead of presidential and parliamentary elections on June 24. President Recep Tayyip Erdoğan has called for lending at lower interest rates to encourage economic growth. He could use the central bank's likely decision to show voters that his wishes are being adhered to.

The central bank had slashed the one-week repo rate during 2016 to help boost economic growth, lowering the rate eight times.

Inflation in Turkey will slow on lower domestic demand, the governor said, according to BloombergHT. The annual inflation rate of 10.9 percent is expected to decline from July, he said.