ANKARA
The Central Bank of the Republic of Turkey will meet Tuesday at 2 p.m. local time (1200GMT) to fix interest rates.
Most analysts expect an interest rate cut, accompanied with a rise in the dollar against the Turkish lira. The last rate cut of 50 basis points on Jan. 20 brought the policy rate down to 7.75 percent.
"It is our view that Tuesday we may see the central bank cutting the policy rate by 25 basis points, and bringing down the upper band -- the so-called 'corridor,' a key interest rate for banks, by 75 basis points," predicts Bora Tamer Yilmaz, an economist with Ziraat Securities in Istanbul in a note published Tuesday.
"What we find more compelling is that the width of the corridor may play a more significant role on activity than the level of the policy rate. When the rates corridor widens, activity loses its momentum. With the current width of 350 basis points, the corridor is restricting financial conditions," Yilmaz says.
Economists surveyed by The Anadolu Agency on Feb. 20 forecast that Turkey’s central bank will cut interest rates. Nearly 75 percent of the 19 economists who participated in the survey expected a cut in interest rates, although their estimations of the amount of the cut varied between 25 basis points and 50 basis points.
Analysts express concern that cutting key interest rates may spark a run on the Turkish lira. "A rate cut could destabilize the currency," warns Atilla Yesilada, an analyst with Global Source Partners in Istanbul.
"We consider 2.80 against the dollar as a de facto peg for the Turkish lira. We believe rate cuts are priced in lira," Yilmaz adds.
The Turkish lira stood at about 2.47 against the dollar Tuesday morning.
Turkish government officials have repeatedly called for a substantial interest rate cut, as they blame the central bank's tight money policy for limiting growth.
“To say that, if low rates were the main reason behind the economic growth, Japan and other countries with low rates would see growth increase rapidly, is to approach an equation that has three to four unknowns with only one known,” Economy Minister Nihat Zeybekci said on Feb. 6.
The central bank has been put in an awkward position, Yesilada explained. Cutting rates too little would have practically no effect, Yesilada said, and cutting them too much could suggest that the bank had bowed to government pressure.
AA will cover the announcement and further news throughout the day.
