TCMB Monetary Policy Decision 2004
Central bank: tcmb | Type: decision | Date: 2004-12-20

Number:2004-44
December 20, 2004
PRESS RELEASE
CBRT INTEREST RATES
I. GENERAL ASSESSMENT
1. The Central Bank (CBRT) has regularly announced its views pertaining to
the general macroeconomic outlook and future inflation via press releases
under the title of “Inflation and Outlook”. In this context, especially in the
reports and announcements issued in the second half of the year, the CBRT
outlined its perspective for 2005. The ri sks that have been underlined include:
(i) domestic demand and labor costs may not help reduce inflation as much as
they did in the past three years, (ii) the high increase in raw material costs and
wholesale prices might start to exert pressure on inflation after some time, (iii)
uncertainties about the launch date of membership negotiations with the
European Union may lead to fluctuations in the financial markets, (iv)
concerns over the sustainability of the current program, (v) price rigidity in
the ser vices sector, especially in rents, (vi) the likelihood of adverse
developments in international liquidity conditions.
The studies for creating a new Economic Program to be implemented in the
next three years are about to be finalized. The main pillar s of the new
economic program will be fiscal and monetary discipline, and structural
reforms. The realization of structural reforms will have a positive impact on
the quality and sustainability of fiscal discipline. Especially tax and social
security reforms are of crucial importance to this end. The policies ensuring
that the principles of the current economic program, whose success has been
proven, would be implemented in 2005 and onwards have, to a large extent,
removed uncertainties.
3. Meanwhile, the EU decision to start membership talks with Turkey, which
was announced at the EU summit on December 17th, 2004, is believed to
support the sustainability of reforms within the framework of the program.
4. These developments have reduced the above -mentioned risks in terms of
inflation in the coming period. Moreover, according to recently announced
data, economic activity lost momentum in the second half of 2004, and the
declining deferred demand eased the pressure on domestic demand. These
developments were predicted in the CBRT’s press release on interest rate cuts
dated 8 September 2004, in subsequent announcements, and in the recent
press release of 9 December 2004. Moreover, as recently emphasized; factors
such as deceleration in the rate of increase in industrial production, imports of
intermediary goods, money demand and credits, and the drop in excess
liquidity, along with the stabilization of consumer tendency and consumer
confidence index, indicate that domestic demand will not reach a level that
would bring about inflationary pressure, at least in the short run.
All these developments have reinforced our belief that future inflation will
pursue a course which is consistent with the targets. Undoubtedly, the CBRT
will continue to closely monitor the risks associated to future inflation as
II. THE CENTRAL BANK INTEREST RATES
6. In the light of the evaluations above, the CBRT has decided to cut short -
term interest rates applied at the CBRT Interbank Money Market and at the
Istanbul Stock Exchange Repo -Reverse Repo Market starting from 20
December 2004 as follows:
Overnight Interest Rates: The borrowing interest rate is lowered to
18 percent from 20 percent and the lending interest rate to 22 percent
from 24 percent.
b) Other Maturities: The one-week borrowing interest rate is lowered
to 18 percent from 20 percent.
c) Late Liquidity Window Interest Rates: Within the framework of
the Late Liquidity Window Facility, the CBRT overnight borrowing
interest rate applicable between 16:00 – 16:30 hours at Interbank
Money Market is lowered to 26 percent from 28 percent. Borrowing
interest rate of 5 percent remains the same.
d) The interest rates on overnight and one -week maturity borrowing
facilities provided for primary de aler banks via repo transactions
within the framework of open market transactions are lowered to 20
percent from 22 percent.
Moreover, in line with the developments in foreign exchange liquidity
observed in FX markets in May 2004, the interest rate applicable to one-week-
maturity foreign exchange deposits provided for banks within their borrowing
limits at the CBRT Foreign Exchange and Banknotes Markets, which was cut
to 6 percent from 10 percent on 11 May 2004, is raised to 10 percent in the
light of favorable developments in the foreign exchange liquidity of banks and
their efficient liquidity management.