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Turkey’s Central Bank Cuts Rates again!

Turkey’s central bank unexpectedly cut key interest rates for the first time in eight months on Thursday!

resuming an unconventional policy demanded by President Erdogan that triggered a currency crisis last year.

The bank said it cut its benchmark interest rate to 13% from 14%, sending the Turkish lira lower and yields higher.

*Tweet on Turkish central bank decision 


Investors sold the lira and Turkey’s dollar bonds after the central bank lowered its key rate to 13%

The Turkish lira lost more than half its value after Mr. Erdogan pressured the central bank into adopting a series of four interest-rate cuts last year to stimulate economic growth, despite soaring inflation.

“It is important that financial conditions remain supportive to preserve the growth momentum in industrial production,” the bank said Thursday in a statement announcing the decision.

The surprise decision runs counter to moves by other central banks around the world, which are raising interest rates to contain rampant inflation driven by high energy prices, the Russian attack on Ukraine, supply-chain issues and economic growth in the wake of the pandemic.

Turkey currently suffers from one of the world’s highest rates of inflation, roughly 80%, according to the government’s figures.

Independent economists say the rate could be much higher.

Mr. Erdogan advocates lower interest rates to stimulate economic growth.

The lira lost 0.8% of its value against the dollar after the decision on Thursday, with one dollar buying more than 18 lira, putting Turkey’s currency near historic lows. The lira has shed more than a quarter of its value against the dollar this year.

“Today the central bank deliberately took a step to further amplify the already existing deep poverty,” said former central bank governor Durmus Yilmaz on Twitter.

Tweet by former central bank governor

It’s shocking but not unexpected. This is what they do,” said Timothy Ash, senior sovereign strategist covering emerging markets at BlueBay Asset Management.

In pursuit of his policy,

Mr. Erdogan has fired a series of central bank governors, and last year the Turkish president dismissed a number of other bank officials to clear the way for the interest-rate cuts.

The yield on a Turkish dollar bond maturing in March 2027 climbed to 10.027%, from 9.725% Wednesday, according to data from Tradeweb. Yields and prices move inversely, with yields rising as investors sell bonds.


Image; Turkish lira