PRESS RELEASE ON THE CBRT INTEREST RATE CUTS
Central bank: tcmb | Type: decision | Date: 2003-07-16

No:2003-31
July 16, 2003
PRESS RELEASE ON THE CBRT INTEREST RATE CUTS
I. GENERAL EVALUATION
1. In “Outlook” section of our press release entitle d June and Inflation and Outlook”
dated July 4,2003, it was emphasized that:
(i) downward trend in inflation became more evident with the figures pertaining
to June inflation,
(ii) developments observed in exchange rates in the last few months and favorable
developments in inflation expectations coupled with the prospective tendency
of these variables in the near future encourages CB RT to think positive about
the future inflation trend,
(iii) the announcements made by officials were deem ed favorable in terms of
conformity with the inflation target, however cost of increase in wages and
salaries exceeding budget targets would create adve rse effects on inflation as
these increases will be met by increasing taxes ins tead of cuts in other
expenditure items,
(iv) taking into account the above-mentioned points and departing from the
supposition that the program would be implemented w ithout any interruptions,
the most important development that could pose thre at to the future trend of
inflation could be the signals about increasing dom estic demand, however
actual production, which was still below the potent ial production level, would
palliate the unfavorable pressure to be exerted by domestic demand on
inflation,
(v) the negative effect that might arise from demand pr essure could be
compensated sufficiently by the recent developments in exchange rates, the
favorable inflation expectations and the strong lik elihood of sustenance of
these trends,
(vi) these favorable developments should not be perceive d as a short-sighted
opportunity to increase profit margins by the priva te sector; long-term interest
should be considered and actions should be taken responsibly,
(vii) the downward inflation trend achieved could only be stopped by deviations
from the program and it was of utmost importance th at fiscal discipline was
maintained and structural reforms were carried on timely and uninterruptedly.
In light of these points, welcoming the above-ment ioned developments, the CBRT
warned that any kind of relaxation would be a big e conomic mistake and departing from the
supposition that no concessions would be allowed in fiscal discipline and structural reform
process, the CBRT envisioned that the favorable dev elopments observed in inflation since
April would continue and the end-year inflation target of 20 percent would be attained.
2. The developments observed since early-July have st rengthened the probability that
the fundamental factors determining the inflation w ill pursue a favorable course in the
following period as well. These developments reinfo rced the CBRT’s hopeful vision for the
future trend of inflation too. The structural refor m process and measures on budget discipline
are the leading ones among these developments. Sign ificant progress was made in concluding
the Fifth Review conducted with the IMF and in effecting the reforms that are essential for the
implementation of the program successfully. Moreove r, it is acknowledged that the budget
discipline will mainly be maintained through expens e-restrictive measures. This development
is considered to be encouraging with respect to the inflation of the following period.
3. Meanwhile, these favorable developments reflect ed on the market expectations for
inflation as well. The results of expectation surve y for the first half of July point at a
noteworthy decline in inflation expectations. Vario us econometric models, which are used by
the Central Bank in forecasting inflation for the f ollowing period on the assumption that
current fiscal and structural policies will be main tained, produce hopeful results that are
consistent with year-end inflation target. These re sults are consistent with the improvement in
the market expectations too.
II. THE CENTRAL BANK INTEREST RATES
4. In the light of the evaluations above, starting from 16 July 2003, CBRT has decided
to cut short-term interest rates applied at CBRT In terbank Money Market and Repo-Reverse
Repo Market at Istanbul Stock Exchange as follows:
a) Overnight Interest Rates: Borrowing interest rate w as cut to 35 percent from 38
percent and lending interest rate to 41 percent from 45 percent.
b) Other Maturity: One-week borrowing interest rate wa s cut to 35 percent from 38
c) Late Liquidity Window Interest Rates: In the framew ork of Late Liquidity
Window application, CBRT overnight borrowing intere st rate applicable between
16:00 – 16:30 Hours at Interbank Money Market was c ut to 46 percent from 50
percent. Borrowing interest rate of 5 percent remained the same.
Moreover, the interest rates on overnight and one-week maturity borrowing facilities provided
for primary dealer banks via repo transactions with in the framework of open market
transactions were cut to 37 percent from 41 percent.