Turkish central bank cuts rates to 9% and says it will stop easing

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Turkey’s central bank cut its interest rate by 1.5 percentage points as expected on Thursday (24th), to 9%, and said it had decided to break its easing cycle.

The move fulfills President Tayyip Erdogan’s call for a single-digit rate by the end of the year, despite inflation above 85%.

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The Lira weakened to a record low of 18.66 against the Dollar after the decision.

With Thursday’s cut, the central bank cut rates by a total of 5 percentage points in four months. The bank says the stimulus is needed given signs of an economic slowdown, even as central banks around the world run in the other direction.

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“It is critically important that financial conditions remain supportive…in a period of heightened uncertainty around global growth, as well as further escalation of geopolitical risks,” the bank said.

“Considering the increasing risks related to global demand, the Committee assessed that the current rate is adequate and decided to end the cycle of interest rate cuts that began in August.”

Inflation has soared since 2021, fueled by an unorthodox easing cycle spurred by Erdogan, which triggered a currency crisis late last year. He said last month that the bank would continue to cut rates every month “as long as I’m in power”.

Erdogan, a self-declared “enemy” of interest rates, intends to boost investment, production, exports and employment while lowering rates in line with his economic program.

Six of seven economists polled by Reuters expect a shift to monetary tightening, which would push the rate into a range of 16% and 35% in 2023.

Analysts say the currency path will depend on Erdogan being re-elected in a presidential election in May or June next year, adding that an opposition victory could see Turkey return to orthodox economic policies.

They don’t expect a change until the elections.

The central bank projects inflation will fall to 65.2% by the end of 2022, thanks largely to base effects in December, compared with a 70.25% estimate in the latest Reuters poll.

Source: CNN Brasil

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