April, 14, 2010

Turkey’s central bank announced plans to reduce liquidity in preparation for a shift to a new benchmark interest rate higher than the current reference.The bank gave no date for the shift in the benchmark to the rate in one-week repo auctions from the present overnight borrowing rate. The change will include setting the one-week repo rate at 7 percent, half a percentage point above the current benchmark, the central bank in Ankara said in a statement on its Web site today. The “exit strategy” will be cautious and not destabilizing, it said.

Yesterday the bank held the overnight borrowing rate at 6.5 percent, the lowest level since Turkey began inflation targeting in 2002. The bank held the rate unchanged even as inflation of 9.6 percent in March was above its year-end goal of 6.5 percent and core inflation accelerated.This is the future rate increase,” said Yarkin Cebeci, an economist at JPMorgan Chase & Co. in Istanbul. “This is an extremely gradual process, more gradual than I expected. I think they’ll need to proceed with these steps faster than they expect.”

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