The Turkish Central Bank reduced its benchmark interest rate by half a percentage point and said it will probably extend a year-long series of cuts, the deepest cuts made among the Group of 20 leading economies.

The overnight borrowing rate was lowered to a record 6.75 percent, the Ankara-based bank said in an e-mailed statement late Thursday. That matched the forecast of 20 of the 28 economists surveyed by Bloomberg.

The Central Bank also lowered the lira reserves banks must set aside in a step designed to release money for lending to companies.

The reduction means Gov. Durmuş Yılmaz has slashed 10 percentage points from the rate in a year after the global crisis drove the country into its deepest recession since World War II. The pace of those cuts may slow now, the bank said in a statement attached to the decision.

“They’re signaling the next cut may be smaller, so we’re going to see at least one more cut of 25 basis points,” Bloomberg quoted Yarkın Cebeci, an economist in Istanbul for JPMorgan Chase.

The bank reiterated previous statements that its easing policy may have to be maintained for “some time” because there are no clear signs of economic recovery and it is not certain that improvements in the labor market will be permanent.

Lowering reserve requirement:

The bank also lowered lira reserves set aside in a step designed to release money. The money from the lira reserves is usually reserved for company loans.

The proportion of liabilities that lenders must deposit with the Central Bank was reduced to 5 percent from 6 percent. The bank said in an email that the change would release about 3.3 billion Turkish Liras ($2.3 billion).

A “limited reduction” in the reserve requirement would “ease credit conditions and thereby support the expansionary monetary policy,” the bank said.

“We expect the bond market to be the immediate beneficiary of this decision,” İnan Demir, economist for Finansbank in Istanbul, wrote in an e-mailed report. “This is the second instance since the onset of crisis that the bank has resorted to ‘old-fashioned’ monetary policy tools.”

Speaking to Hürriyet Daily News & Economic Review, Gazi Erçel, a former Central Bank governor, said the rate cut comes as no surprise. Erçel said the decision to lower the reserve requirement is in line with the decision taken by the Group of 20 in its Pittsburgh summit in April.

“Currently, the market is sluggish and no one wants to invest. In this situation, even reduced interest rates will not help,” economist Mahfi Eğilmez said. “Interest rates have to be lower than the money businesses earn. But if there is no money to earn, [lowering rates] will not help the economy.”

Second step since December:

The bank had cut the required level of foreign currency reserves to 9 percent from 11 percent in December, adding about $2.5 billion in additional foreign exchange liquidity.

The inflation rate was unchanged at 5.3 percent in September. The rate hit a 39-year low of 5.2 percent in May and has dropped from 12.1 percent in July 2008.

Price growth is likely to remain slow in the months ahead because the economy is performing below its potential and unemployment is high, the central bank said on Oct. 5.

The bank’s target for this year is 7.5 percent and its most recent survey of economists and businessmen forecast a year-end inflation rate of 5.4 percent.

Gross domestic product shrank an annual 7 percent in the second quarter, after contracting a record 14.3 percent in the previous three months, the statistics office reported on Sept. 10. The overall contraction this year may be 6.5 percent, according to the International Monetary Fund. That would be the deepest decline since 1945.

Rising bond prices helped the country’s banking system weather the crisis without the need for government bailouts. Manufacturers, though, have been hurt as European demand for Turkish-made cars, fridges and washing machines slumped.

The slowdown pushed unemployment to 12.8 percent in the three months through August, from 9.9 percent a year earlier, the official statistics office said Thursday. Almost one-in-four adults under 24 are out of work, it said.

Turkey and the IMF have been in talks for more than a year on a possible loan agreement to help buttress the economy against the slowdown