Turkey's central bank on Thursday pruned one of its main interest rates in a surprise move at a time of persistently high inflation. The central bank said its one-week repurchasing rate - seen as the headline rate - remained unchanged at 7.5 percent. But the overnight marginal funding rate - at which the central bank lends to commercial banks in need of overnight funding - was being snipped to 10.50 percent from 10.75 percent.
The overnight borrowing rate, at which banks lend to each other at the end of the day, was kept at 7.25 percent, it said. The monetary policy committee in its statement described the cut as a "measured step towards simplification" of the bank's notoriously complex interest rate system.
The move surprised analysts, who had been expecting a completely unchanged pattern of rates and comes at a time when inflation is still high at 8.8 percent in February - well over the bank's 5 percent target. "Improvement in the underlying core inflation trend remains limited, necessitating the maintenance of a tight liquidity stance," the bank acknowledged.
Turkish President Recep Tayyip Erdogan had put the bank under sustained pressure to trim rates in order to boost Turkey's growth and markets had been looking to see if its respected governor Erdem Basci could retain the bank's independence. "It (the cut) appears to be a result of sustained pressure from the government to lower interest rates," said William Jackson, senior emerging markets economist at Capital Economics.