By Yeliz Candemir and Emre Peker<\/p>\n
ISTANBUL\u2014Turkey\u2019s central bank trumped market expectations with a surprise interest-rate cut on Tuesday, sending mixed policy signals amid waning foreign investor appetite and a challenging economic outlook.<\/p>\n
Officials in Ankara cut the overnight lending rate to 7.50% from 8.50%, thus reducing the ceiling of the central bank\u2019s interest-rate corridor, the Monetary Policy Committee said. The rate-setters maintained the 4.50% overnight borrowing rate\u2014the corridor\u2019s floor\u2014and the one-week benchmark repo rate of 5.50%. The central bank move went against forecasts by all but two of the 10 economists surveyed by The Wall Street Journal.<\/p>\n
The decision, widely characterized as \u201cconfusing\u201d by economists, comes just as Turkey\u2019s central bank had started to regain investors\u2019 trust. Gov. Erdem Basci, recipient of the \u201cCentral Bank Governor of The Year\u201d award by The Banker magazine in January, had toiled for two years to convince markets that his policies curbed credit-fueled economic growth, slowed inflation and shrunk record short-term foreign funding needs\u2014all threats that Turkey\u2019s economy faces again today.<\/p>\n
\u201cThe central bank will need to work hard to explain the latest move,\u201d said Tim Ash, head of emerging markets at Standard Bank PLC in London. \u201cIt is running a very nuanced policy at present and a lot gets lost in translation.\u201d<\/p>\n
As Mr. Basci tried to rebalance an overheating $800 billion economy in the past two years, he was widely criticized for his unorthodox policy mix\u2014including an interest-rate corridor, a benchmark rate, shifting reserve requirements, liquidity management and currency targeting.<\/p>\n
Now, the central bank\u2019s penchant for the unusual may spook international investors amid global financial uncertainties like the tiny yet unnerving bailout of Cyprus. Analysts say that would threaten Turkey\u2019s ambition to boost economic growth to 4% this year from 3% in 2012 because the country relies heavily on foreign funding to make up for a lack of domestic capital.<\/p>\n
Yet the healthy recovery in domestic demand is also triggering a surge in consumer lending\u2014the\u00a0driver of Turkey\u2019s average 9% economic growth levels in 2010-11. And as the central bank seeks to tweak credit growth toward commercial loans, Gov. Basci is deploying complicated policy tools to try and tighten the central bank\u2019s stance while also seeking to protect economic growth.<\/p>\n
\u201cThe combination of increasing difficulty in attracting capital inflows and accelerating credit growth means the central bank will maintain its tightening bias,\u201d said William Jackson, an economist at Capital Economics in London. \u201cTurkey\u2019s external vulnerabilities haven\u2019t gone away\u2014in fact, they are among the largest in the emerging world.\u201d<\/p>\n
Indeed, foreign investors sold $1.6 billion of Turkish government bonds in the week ended March 15, the biggest net weekly sale since 2007, according to Capital Economics. Meanwhile, bank lending has increased by 24% in 2013, driven partly by consumer credit and expanding nearly twice as fast as it did at the end of last year, according to central bank data.<\/p>\n
Moreover, booming consumer lending threatens to boost Turkey\u2019s current-account deficit, which declined to a still unsustainable 6% of gross domestic product in January from a peak of 10% in 2011. Economists say surging domestic demand and increasing short-term foreign funding needs on the back of rising imports may also trigger higher inflation, which declined to 7% in February from 11% last April.<\/p>\n
\u201cThe central bank seems uncomfortable from the uncertainty triggered by the slowdown in foreign inflows. It looks like banks will become more reliant on the central bank for funding, which increases uncertainty and costs,\u201d said Gizem Oztok Altinsac, an economist at Garanti Securities. \u201cThus, it seems the central bank is seeking to slow credit growth through this avenue, but we still think there\u2019s a risk that this change in tactic won\u2019t work.\u201d<\/p>\n
via Turkey\u2019s Central Bank Policy: Lost in Translation – Emerging Europe Real Time – WSJ.<\/p>\n","protected":false},"excerpt":{"rendered":"
By Yeliz Candemir and Emre Peker ISTANBUL\u2014Turkey\u2019s central bank trumped market expectations with a surprise interest-rate cut on Tuesday, sending mixed policy signals amid waning foreign investor appetite and a challenging economic outlook. Officials in Ankara cut the overnight lending rate to 7.50% from 8.50%, thus reducing the ceiling of the central bank\u2019s interest-rate corridor, […]<\/p>\n","protected":false},"author":83,"featured_media":66059,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[846],"tags":[4643],"class_list":["post-68749","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-central-bank"],"_links":{"self":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/68749","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/users\/83"}],"replies":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/comments?post=68749"}],"version-history":[{"count":0,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/68749\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media\/66059"}],"wp:attachment":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media?parent=68749"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/categories?post=68749"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/tags?post=68749"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}