Turkey’s central bank cut its interest rate by 1 percentage point on Thursday (18) to 15%, citing temporary price pressure and affecting the lira, even after inflation jumped to nearly 20% and the currency has plummeted to record lows.
The bank, which is said to bow to President Tayyip Erdogan’s calls for stimulus despite the risks, extended the easing cycle that began in September when the one-week repurchase interest rate was cut from the 19% level.
The lira retreated against the dollar after the ruling and was down 3% to 10.98, equaling a record low hit earlier in the day.
The expectation in a Reuters poll carried out last week was a 1 point cut by the central bank. The size of the 2 percentage point cut made last month surprised the markets.
Analysts have called the monetary easing premature and reckless, as it leaves Turkey’s real yields in deep negative territory, and go against the global move as global central banks are raising interest rates to stem price hikes.
The central bank’s credibility has been undermined in recent years given Erdogan’s frequent criticisms of interest rates and his rapid reshaping of the bank’s leadership due to differences of opinion.
Erdogan vowed on Wednesday to continue fighting interest rates “to the end,” speeding up the lira liquidation.
Reference: CNN Brasil
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