UPDATE - Turkey's Central Bank cuts overnight lending rate

UPDATES WITH QUOTES FROM ANALYSTS YILMAZ, KANLI AND ERKAN

ANKARA (AA) - Turkey’s Central Bank on Tuesday cut its overnight lending rate by 50 basis points following recent cuts in the last three months.

The overnight lending rate, which is the rate at which banks borrow from the Central Bank overnight, was cut 50 basis points from 9.5 percent to 9 percent.

The overnight borrowing rate, however, under which banks lend or deposit money to the Central Bank, remained unchanged at 7.25 percent.

The one-week repo rate, known as policy rate, was also kept at 7.5 percent, the bank said.

In late liquidity window interest rates (between 4.00 p.m. - 5.00 p.m.), the borrowing rate has been kept at zero percent, and lending rate has been reduced from 11 percent to 10.50 percent.

"The favorable developments, in terms of trade and moderate course of consumer loans, contribute to the improvement in the current account balance," the bank said in a statement.

"While domestic demand continues to have a positive impact on growth, demand from the European Union economies continues to support exports. Accordingly, economic activity displays a moderate and stable course of growth."

The bank added that implementation of the structural reforms in the country would contribute to potential growth significantly.

Economist Bora Tamer Yilmaz at Ziraat Securities told Anadolu Agency that this was part of an end to monetary policy’s simplification process.

“We can say that we are approaching the end of simplification process. After completion of simplification steps, we will be able to see if we have come to the point of rate cuts [in policy rates]," Yilmaz said.

Finansinvest Chief Economist Burak Kanli said the cut would be reflected in loan interest rates.

But Kanli warned that the effect would be limited. “Because the banks’ lending appetite is low and this is the main problem of credit markets," he said.

KapitalFx Analyst Enver Erkan noted that headline inflation, which is a measure of total inflation within an economy, was just above 6.5 percent in the country, while Fed’s dovish statements had created a suitable environment for Turkish Central Bank to continue rate cuts.

"Within this, the Central Bank cut the upper band of interest corridor by 50 base points, means that further simplification of monetary policy,” Erkan said.

"While Brexit concerns caused some risk, Central Bank decision was not affected by it," he added.

Erkan said the overnight lending rate was getting closer to policy rate.

"In July meeting, one last rate cut could be expected, so that the interest rate corridor will be like 8.50 – 7.50 – 7.25, tighter than current. A further rate cut would be considered by markets as ‘easing’, not ‘simplification’," Erkan added.