The Central Bank of the Republic of Turkey (CBTR) lowered its benchmark interest rate, the one-week repo rate, by 100 basis points to 13% from 14%. This generated a sharp drop in the lira. USD/TRY jumped to 18.15 before smoothing up to 18.05. “The deflation process is expected to begin“, stated the CBTR.
The central bank said that the increase in inflation is driven by the delayed and indirect effects of the increase in energy costs stemming from the events geopolitical.
“It is important that financial conditions remain supportive to preserve growth momentum,” said the monetary authority, which considers that the “updated level of the official interest rate is appropriate in the current outlook“. The statement also reads that “the recent increase in the spread between the policy rate and the interest rate on loans is considered to reduce the effectiveness of monetary transmission.”
The CBTR will continue to resolutely use “all available instruments within the framework of the lyralization until solid indicators point to a permanent drop in inflation.”
In regards to the economythe central bank warned that leading indicators for the third quarter point to some loss of momentum in economic activity.
Source: Fx Street