September 25, 2019 / 9:27 AM / 2 months ago

UPDATE 2-Turkish central bank has 'front loaded' policy steps, chief says

(Adds analyst comment)

By Nevzat Devranoglu

ANKARA, Sept 25 (Reuters) - Turkey’s central bank governor on Wednesday described recent policy steps as “front loaded,” after the bank slashed its key interest rate by 750 basis points in less than two months.

Murat Uysal, addressing an industry forum in Ankara, said the central bank must maintain its “cautious” stance even as he predicted a continued drop in inflation and a moderate recovery for Turkey’s economy.

“We chose to use a significant part of the room to manoeuvre in monetary policy in July and September in a front-loaded way,” he said in a speech.

“When we made this decision, we targeted a monetary policy stance that would be largely in line with the targeted disinflation path. We evaluate that the current monetary policy stance is supporting the fall in inflation,” he added.

A currency crisis last year sent inflation soaring, prompting the central bank to hike rates to 24% and tipping the economy into recession. Inflation has since dipped, and the bank began in late July cutting rates to 16.5%, with analysts expecting more easing before year end.

Uysal said leading indicators pointed to a continuation in the recovery in economic activity and a rebalancing in the second half of the year. The country’s risk premium and financial volatility should also fall, he said.

The lira, which tumbled nearly 30% last year, was a bit firmer at 5.6820 against the U.S. dollar after Uysal’s comments. It stood at 5.6935 at 1113 GMT, compared to a close of 5.7000 on Tuesday.

Piotr Matys, emerging markets foreign exchange strategist at Rabobank, said the bank had eased rates too fast, but that Uysal’s comments were encouraging because they implied future moves will be “far more measured.”

“When assessing monetary policy one has to take into consideration President (Tayyip) Erdogan’s view on interest rates,” Matys said in a note, referencing Erdogan’s comments earlier this month that inflation would ease as interest rates are lowered to single digits.

“With the policy rate at 16.5%, there is still a long way to go before Governor Uysal meets President Erdogan’s expectations,” he said. (Additional reporting by Ezgi Erkoyun; Writing by Daren Butler; Editing by Jonathan Spicer and Bernadette Baum)

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