* Bank cut rates, raised reserve requirements
* Says net effect is monetary tightening
* Complex policy mix has sometimes baffled investors
By Seltem Iyigun
ISTANBUL, Feb 20 Turkey's central bank told
economists on Wednesday the net aim of its latest policy moves,
in which it cut interest rates and raised reserve requirements,
had been to tighten monetary conditions and signalled it would
take similar steps again.
The central bank cut its overnight borrowing and lending
rates by 25 basis points on Tuesday to prevent speculative
capital inflows from boosting the lira too sharply, and raised
reserve requirements to cool loan growth.
The bank has been walking a fine line trying to stoke weak
domestic demand without fuelling inflation, and its complex
policy mix has at times baffled investors. It holds a briefing
with economists the day after its policy decisions.
At the meeting, the bank said the net effect of its actions
on Tuesday had been to tighten policy by making it more
expensive for banks to give loans, both through the rise in
required reserves and the lower overnight lending rate, which
makes lending less profitable for banks.
"The central bank underlined that what they did (on Tuesday)
is a tightening in monetary policy," one of the economists who
attended the meeting in Ankara told Reuters.
"It signalled it could cut the rates further while keeping
the interest rate corridor gap intact. But it didn't suggest any
cut in the policy rate," he said.
Since late 2010 the bank has been using an unorthodox policy
mix based on daily liquidity management, a low policy rate, high
required reserves and an adjustable interest rate corridor, the
gap between its overnight lending and borrowing rates.
Tuesday's moves shaved a quarter point off its borrowing and
lending rates but kept its one-week repo policy rate, which it
cut by 25 basis points in December, unchanged at 5.50 percent.
The central bank said it had cut the borrowing rate to deter
short-term capital inflows and the lending rate due to high loan
spreads, the differential between banks' cost of funding and the
interest rates they charge on loans, economists said.
The bank signalled it could gradually increase required
reserves further as economic growth accelerates, while cutting
rates again if the lira appreciates, economists said.
"It didn't say it explicitly but I think it will cut rates
each time the real exchange rate rises above 120 and will raise
required reserves as long as loan growth is strong," a second
economist who attended the meeting said.
In November the bank said it would cut rates in a measured
way if the real exchange rate reached 120-125 on its index, and
would use all policy tools available if it rose above 130. In
January it stood at 120.16.
(Writing by Seltem Iyigun; Editing by Nick Tattersall and