The Turkish Central Bank reduced interest rates by a further 2 percent yesterday bringing them to a new low.

The overnight borrowing rate (base rate) now stands at 13 percent whilst one week borrowing has reduced from 16 percent to 14.50 percent.

The two percent reduction in the base rate is double the figure that economists believed would take place.

Turkish Economic Slowdown Intensified

In a press release issued yesterday the bank said :

“Recent readings indicate that the slowdown in the domestic economic activity has further intensified. Latest forecasts suggest that ongoing problems in international credit markets and the global economy will last longer than previously envisaged. Therefore, downward pressures on both domestic and external demand and inflation will continue.“

“The Committee has judged that moving forward a sizeable portion of the rate cuts envisaged for the coming months would help offset the tightening in financial conditions. “

Banks May Offer Higher Rates

As in the UK Turkish banks may offer higher rates to entice savers as they try to prop up their balance sheets with cash.

Savers before the recent interest rate cut could get annual interest rates of up 20%.

But this will also mean that borrowers won’t see the benefits of reduced lending rates.

Money under Pressure

Money (Currency) experts are predicting that the Turkish Lira will suffer worst when international investors wake up to the credit crisis that has built up in Eastern Europe over the last few years.

The economic data is suggesting that countries such as Turkey, Poland and The Czech Republic are now feeling the effects but will not be in a good position to protect their finances.

As investors find safer homes for their cash these countries could find their currencies depreciating.

One investment company Goldman Sachs is advising its clients to sell the currencies of these three countries.

However, the news of the Turkish interest rate cuts pushed up the value of the Lira against the US Dollar today making us wonder - just when will the investors alarm clock go off?