Central Bank of Turkey drops interest rates
Effective from September 8, 2004, the Central Bank of Turkey lowered the short-term interest rates which had been put into effect on the repo-reverse repo market by two of its subsidiaries, the Interbank Money Market and the Istanbul Stock Exchange. According to the announcement made by Central Bank, the overnight borrowing rate was reduced from 22% to 20% and overnight lending rate from 27% to 24%. Central Bank pointed out that there is no marked risk factor threatening to prevent Turkey from reaching its 2004 inflation target and the costs of domestic demand and labor force may not support the inflation decline in 2005 compared to last three years. It is also reported that high oil prices may create pressure on both current account and inflation by increasing energy costs. A liquidity bind that could occur in international markets and interest increases may also create pressure on the exchange rates, Central Bank said. On the other hand, budget discipline, the quality of budget discipline, continuity of the structural reforms and inflation-oriented monetary policy implementations are stated as the major factors of decreasing inflation. Within the application of Late Liquidity Window framework, the overnight lending interest rate of the Interbank Money Market between the time of 16:00-16:30 was lowered from 32% to 28%, while the borrowing interest rates remained unchanged at 5%. Also, overnight and one week borrowing interest rates were reduced from 24% to 22% under the open market operations framework by the way of repo process to market maker banks.