P 171222Z APR 09
FM AMEMBASSY ANKARA
TO SECSTATE WASHDC PRIORITY 9455
INFO TREASURY DEPT WASHDC PRIORITY

UNCLAS ANKARA 000571 
 
 
DEPT FOR EEB/IFD/OMA SNOW, TREASURY FOR WEISS, VELTRI, 
PARODI 
 
E.O. 12958: N/A 
TAGS: EFIN ECON TU
SUBJECT: CENTRAL BANK CUTS POLICY RATE TO HISTORIC LOW 
 
¶1.  Summary:  On April 16, the Central Bank of the Republic 
of Turkey (CBRT) announced the Monetary Policy Committee cut 
its overnight borrowing rate to 9.75% from 10.50% and its 
overnight lending rate to 12.25% from 13.00%.  Policy rate 
cuts since November 2008 have totaled 700 basis points (bp) 
and, for the first time since the 1960s, the overnight rate 
eased to single digits.  Economists expect CBRT will continue 
rate cuts to bring down market interest rates, which should 
help to boost economic activity in Turkey.  End summary. 
 
¶2.  The CBRT Monetary Policy Committee (MPC) held its monthly 
meeting April 16 and announced a 75 basis point rate cut in 
its policy rates, higher than the 50 bp market expectation. 
The MPC cut its benchmark rate (overnight borrowing rate) to 
9.75%, which is a level not seen since the 1960s.  Market 
economists such as Yarkin Cebeci from JP Morgan and Baturalp 
Candemir from EFG Istanbul expect rate cuts to continue, 
especially after recent jumps in unemployment, which 
increased to 15.5% in January 2009 with 3.6 million 
unemployed, up 1.1 million year on year.  Industrial output 
was also weak, dropping 23.7% in February 2009.  The 
government revised downward its real GDP growth assumption 
for 2009 from plus 4% to a much more realistic minus 3.6% on 
April 13, which also may have factored into the CBRT's 
decision.  Earlier this week, CBRT Governor Durmus Yilmaz 
expressed concern over the gloomy economic outlook. 
 
¶3.  In the note released with the rate decision, CBRT 
signaled further rate cuts, which might come in smaller 
increments.  CBRT said that the slowdown in economic activity 
will continue, since there has been no concrete sign that 
global recovery has begun.  Downward pressure on inflation 
will continue since economic recovery will take time, and 
future rate cuts may be more measured.  The Central Bank 
stated that downward flexibility in monetary policy is likely 
to remain for the foreseeable future.  The CBRT also took 
into account the Turkish Lira's stability over the last month 
and limited negative effects from foreign exchange weakness 
early in 2009. 
 
¶4.  Comment: Although the rate cuts were slightly more robust 
than expected, markets were not rattled.  The bond market 
began pricing in this rate cut at the beginning of the week 
(April 13) and government bond rates hit a compound annual 
level of 12.5% in the secondary market.  On April 17, rates 
dropped to 12.38% following the MPC announcement.  Bank 
lending rates are still high and range from 20-70% depending 
on the type of loan and the borrower, but we expect CBRT rate 
cuts will force down commercial market rates, and act as a 
key catalyst for growth in the second half of 2009.  End 
comment. 
 
Visit Ankara's Classified Web Site at 
http://www.intelink.sgov.gov/wiki/Portal:Turk ey 
 
Jeffrey