Turkish central bank cuts key rate by 50 basis points

ANKARA (AFP) – Turkey’s central bank yesterday slashed its key overnight borrowing rate by 50 basis points to 16.25 percent on expectations that inflation will fall. It was the third time in three months that the rate has been reduced. «Aggregate demand conditions continue to support the disinflation process,» the bank’s monetary policy committee said in a written statement. «Despite risks in prices affected by energy and food, inflation is expected to continue to decelerate due to the effect of strong monetary tightening.» Turkey’s consumer inflation reached its lowest point in 37 years in July at 6.90 percent, but then increased to 7.39 percent in August amid fallout on international markets from a US credit crunch linked to risky home loans. It slid back to 7.12 percent in September before rising to 7.70 percent in October. Fighting inflation is a key element in an economic stability program Turkey is implementing with the support of a 10-billion-dollar loan from the International Monetary Fund. The deal expires next year. The government’s year-end inflation target is 4 percent. In 2006, inflation reached 9.65 percent, nearly double the year-end target of 5.0 percent under the IMF program.