CBT cut overnight lending rate by 50 basis points

CBT reduced its overnight lending rate from 10 percent to 9,50 percent, maintaining one week repo rate and overnight borrowing rate at 7,50 percent and 7,25 percent, respectively. CBT suggests that global volatility has increased to some extend recently. Increase in global volatility broadly stemmed from Fed president's assessments over US economy. They have been expressing that there is no problem with US economy. According to them economic conditions are progressing positively and should give Fed to hike its policy rate in summer montsa.

Monetary Policy Committee repeated that headline inflation continued to decline due to mainly unprocessed food prices. But core inflation underperformed in this period. Therefore, CBT maintained its tight liquidity stance. CBT also changed its "lessened wide interest rate corridor needs" assessment with "increasing resilience of the economy against shocks". In this respect, CBT tried to say that potential rate cuts on upper bound closed to end. I think one more rate cut on the upper bound can be carried out next month, but Fed's forward guidance about rate hikes and regional Fed president's speeches must be closely watched.

If Fed hikes its policy rate in June or July, CBT would have to raise its overnight borrowing rate (7,25 percent) and one week repo rate (7,50 percent) at the first meeting after Fed's. On the other hand, if Fed delays its interest rate hike timing by the end of the year (probably in December), CBT can have an opportunity to ease a little bit more on the upper bound.