Turkey central bank says rate cuts helping credit, lira competitive

Turkish Central Bank Governor Murat Uysal said a series of rate cuts by the central bank was helping to boost credit without worsening the outlook for inflation.

The central bank will persist with its cautious stance towards interest rates, ensuring that the goals of slower inflation, a lower country risk premium and a decline in long-term interest rates are met, Uysal told businessmen in a speech in the western city of Bursa on Tuesday.

“Interest rate reductions and other measures, such as changes to required reserves are making it easier to access credit,” Uysal said, adding that growth in loans was helping to boost economic activity.

Turkey’s central bank has slashed interest rates to 10.75 percent in February from 24 percent in July, when President Recep Tayyip Erdoğan sacked Uysal’s predecessor for failing to lower borrowing costs. Annual consumer price inflation in Turkey currently stands at 12.2 percent, meaning real interest rates in the country are negative.

Employment and investments by Turkish firms are now on the upswing, helping to ensure that the country achieves sustainable economic growth, the governor said.

The level of the lira against foreign currencies is also supporting Turkey’s competitiveness in global markets, Uysal said. Exports are playing an important role in ensuring the sustainability of economic growth, despite a partial weakening in demand from abroad, he said.

The lira declined by 0.1 percent to 6.14 per dollar on Wednesday, falling close to the lowest level in regular trading since May. The lira slumped by 28 percent in 2018 after the eruption of a currency crisis that sent economic activity spiralling downwards. It fell 11 percent last year.

Inflation, which is expected to slow to 5.4 percent by the end of 2021, will then stabilise at 5 percent in the medium term, Uysal said. Inflation will remain at current levels for “a period of time” before slowing gradually towards the central bank’s year-end forecast of 8.2 percent, he said.

“Our cautious stance on monetary policy and the persistent slowdown in inflation has brought a swift decline in inflation expectations,” the governor said.

“Cuts to the benchmark intertest rate have been reflected strongly in loan and deposit interest rates,” Uysal told the businessmen. “We are continuing to support financial stability with our stance on interest rates and other macro policies aimed at reducing inflation.”

Those policies included steps taken since December to encourage long-term corporate and mortgage loans and lowering fee and commission charges by banks, Uysal said.

Turkey’s central bank will next meet to decide on interest rates on March 19. It lowered them by 50 basis points, or 0.5 percentage points last week.