THE CBRT INTEREST RATE CUTS
Central bank: tcmb | Type: decision | Date: 2004-03-17

Number: 2004-11
March 17, 2004
PRESS RELEASE
THE CBRT INTEREST RATE CUTS
I. GENERAL ASSESSMENT
1. Consumer prices that remained well below the targeted inflation rate both in 2002
and 2003 and downward trend in inflation that further accelerated in the first two months of
2004 demonstrate the remarkable achievement obtained in disinflation efforts. In this process,
consumer prices inflation, which was 68.5 percent as end of 2001, came down to 14.3 percent
as of F ebruary 2004. The main factors underlying this success are, by all means, the tight
fiscal and monetary policies implemented in a consistent manner and the structural reforms
carried out since the adoption of the program.
2. In our press release issued fol lowing the announcement of the January 2004
inflation figures, the importance of fiscal discipline for disinflation efforts was elaborated. It
was also underlined that budgetary measures should involve curbing expenditures rather than
increasing taxes and resorting to public price adjustments, and within this framework, a
“conditional optimism” was expressed for the rest of 2004. In fact, the recently taken
expenditure-curbing measures to compensate the impending adverse effects of the increases in
the minimum wage and pensions on the budget have increased perceptions that fiscal policy
would continue to support the downward trend in inflation for the rest of 2004.
3. The remarkable decline in inflation in the first two months of the year, the absence
of a domestic demand pressure, the stability in exchange rates, and the inflation expectations
close to the end -year inflation target of 12 percent have all supported the belief that the end -
year target for 2004 is attainable. Meanwhile, the rate of increase in the food prices is
expected to be relatively high in March, due to rapid increases in agricultural prices stemming
from adverse weather conditions in January and February, and tax adjustments on tobacco
products. However, it is expected that inflation exc luding food prices would remain low.
According to the analyses made in light of these developments, and under the main scenario,
in which no exogenous shock is expected, it is considered that the annual inflation will
continue coming closer to single digit s until May, and will end up the year within the targets
although it may show, from June on, some minimal fluctuations that would not jeopardize the
inflation target.
4. Undoubtedly, there still remain some risk factors that might jeopardize attaining the
inflation target. The most important risk factor is the rigidity in services sector prices,
especially the price -setting policy in rents, education and health sectors that is not consistent
with the inflation target. A better operating free competitive sys tem in the mentioned sectors
will diminish such a risk factor. Meanwhile, supply -oriented fluctuations in food and energy
prices that cannot be controlled by the Central Bank remain as a risk factor.
5. It should be borne in mind that Central Bank’s ultimate objective is achieving price
stability. As a matter of fact, the Central Bank has already focused itself on the prospective
obstacles on the way of price stability in 2005. Within this framework, every step taken for
enhancing fiscal discipline, adopti ng principles of good governance, and increasing
productivity will enable the Central Bank to maintain its conditional optimism for the future.
II. THE CENTRAL BANK INTEREST RATES
In the light of the evaluations above, starting from 17 March 2004, the Central Bank
(CBRT) has decided to cut short-term interest rates applied at CBRT Interbank Money Market
and Repo-Reverse Repo Market at Istanbul Stock Exchange as follows:
a) Overnight Interest Rates: Borrowing interest rate was cut to 22 percent from
24 percent and lending interest rate to 27 percent from 29 percent.
b) Other Maturity: One-week borrowing interest rate was cut down to 22
percent from 24 percent.
c) Late Liquidity Window Interest Rates: Within the framework of Late
Liquidity Window Facility, CBRT overnight borrowing interest rate applicable between 16:00
– 16:30 Hours at Interbank Money Market was cut to 32 percent from 34 percent. Borrowing
interest rate of 5 percent remained the same.
d) The interest rates on overnight and one -week maturity borrowing facilities
provided for primary dealer banks via repo transactions within the framework of open market
transactions were cut down to 24 percent from 26 percent.