New Governor of Turkey Central Bank makes debut with rate cut

Sunday 17/04/2016
Will he bow to political pressure?

ANKARA - Turkey's central bank Wednesday cut a key interest rate at the debut meeting of its new governor in a move aimed at reassuring skittish investors but that disappointed the government.
The central bank said the overnight marginal funding rate was trimmed 50 basis points, as expected by analysts, to 10.0 percent from 10.50 percent.
It left the one-week repurchasing rate unchanged at 7.5 percent, as also widely forecast.
The overnight borrowing rate, at which banks lend to each other at the end of the day, was kept at 7.25 percent.
Wednesday's meeting had been a key test for brand new governor Murat Cetinkaya, amid concerns he would bow to political pressure to enact far deeper cuts.
"A 50 bps upper end cut [was] already in the prices and market reaction will be muted because of that," said BGC Partners analyst Ozgur Altug.
The young Cetinkaya, who formally replaced Erdem Basci on Tuesday, was being watched closely to see if he could defend monetary policy from government interference.
Analysts had warned that, despite a stabilising lira and declining inflation, a deeper than 50 bps cut would have sounded loud alarm bells over political pressure on the central bank.
But Economy Minister Mustafa Elitas said it did not go far enough. "I had expected the central bank to trigger excitement and the desire to make investments but it did not happen," he was quoted as saying by Turkish media.
After the announcement, the lira strengthened, and was being traded at 2.8 to the dollar and 3.1 to the euro.
Cetinkaya, 40, was previously deputy central bank governor and had watched as Basci repeatedly faced pressure from President Recep Tayyip Erdogan to cut interest rates, raising question marks over the independence of the bank.
The markets, initially fearful Erdogan would push for a loyalist to replace Basci at the helm, reacted well to the appointment of Cetinkaya, a figure chosen from the heart of the monetary policy committee and not an unknown quantity.
Erdogan has often pressured the nominally independent central bank to trim rates to trigger growth and investments, prompting criticism from economists warning a dramatic cut would push up inflation.