ON THE CBRT INTEREST RATE CUTS
Central bank: tcmb | Type: decision | Date: 2003-10-15

Number:2003-49
October 15, 2003
PRESS RELEASE
ON THE CBRT INTEREST RATE CUTS
I- GENERAL ASSESSMENT
1. Fiscal discipline and monetary discipline are the s ine qua non
conditions for disinflation efforts. As stated in t he press release titled “September
Inflation and Outlook” issued in early October, the atmosphere of confidence
achieved as a result of the positive perceptions of economic agents about the
sustainability of the economic program brought alon g stabilization in exchange
rates. Thus, the inflation continued the downward t rend not only through the input
costs but also through the expectations. Moreover, the fact that the recovery in
demand is not yet at a level that would put burden on production potential is
another factor that backs up the downward trend in inflation. In September, annual
CPI and WPI inflations dropped to 23 percent and 19 ,1 percent, respectively. These
figures have strongly reinforced the perceptions th at the inflation target for end-
2003 would be achieved.
2. It is clear that the favorable trend in the inflati on can only be
sustained by uninterrupted continuation of the fisc al discipline and the structural
reform process. Within this framework, the determin ation in pursuing a public
sector incomes policy, which is instrumental in inf lationary dynamics, in line with
the 2004 inflation target, and the measures taken f or preserving the budgetary
discipline for the rest of 2003 and also in 2004, a re all supporting our view that the
Turkish economy will continue to move in the right path.
3. On the other hand, in the absence of exogenous shoc ks, a failure in
achieving a satisfactory decline in inflation, desp ite the improvements in economic
fundamentals, can only be attributed to unfavorable expectations. Therefore,
matching the expected inflation rate with the targe ted inflation rate is of utmost
importance. According to the results of the Expecta tions Survey for the first half of
October, the year-end inflation expectations have f allen to 19,8 percent, below
the year-end target of 20 percent, while the expect ations for the next 12 months
have decreased to 16,5 percent. Considering that th e year-end inflation target for
2004 has been set as 12 percent, it is obviously si gnificant to see inflation
expectations coming closer to this target. It is al so clear, however, that this
process needs to be accelerated even further. But t his alone may not suffice. What
is more important is that, the improvement observed in inflation expectations
should also be reflected on the private sector wage and price setting policies and
on similar contracts for the next period.
II. THE CENTRAL BANK INTEREST RATES
4. In the light of the evaluations above, starting fr om October 15, 2003,
the CBRT has decided to cut short-term interest rat es applied at CBRT Interbank
Money Market and Repo-Reverse Repo Market at Istanbul Stock Exchange as follows:
Overnight Interest Rates: Borrowing interest rate was cut to 26
percent from 29 percent and lending interest rate to 31 percent from
35 percent.
b) Interest Rates of Other Maturities: One-week borrowing interest rate
was cut to 26 percent from 29 percent.
c) Late Liquidity Window Interest Rates: In the framework of Late
Liquidity Window application, the CBRT overnight bo rrowing interest
rate applicable between 4:00 – 4:30 pm at Interbank Money Market was
cut to 36 percent from 40 percent. Borrowing interest rate of 5 perc ent
remained the same.
Moreover, the interest rates on overnight and one-w eek maturity borrowing
facilities provided for primary dealer banks via re po transactions in the framework
of open market operations were cut to 28 percent from 31 percent.