Turkish Central Bank cuts key interest rate to 14 percent

Turkish Central Bank cuts key interest rate to 14 percent

Turkish Central Bank cuts key interest rate to 14 percent

The Turkish Central Bank on Dec. 16 decided to cut interest rates for the fourth successive month, bringing its benchmark one-week repo rate from 15 percent to 14 percent.

“Increase in inflation in November has been driven by developments in exchange rates and supply side factors such as the rise in global food and agricultural commodity prices, supply constraints, and demand developments,” said the bank’s Monetary Policy Committee (MPC).

“The committee decided to complete the use of the limited room implied by transitory effects of supply-side factors and other factors beyond monetary policy’s control on price increases and reduced the policy rate by 100 basis points,” it added.
The decision was in line with the policies of President Recep Tayyip Erdoğan, who has been pressing for low borrowing costs to boost growth, exports and investments.

The Central Bank cut its key interest rate gradually from 19 percent in August to 15 percent lost month.
In his recent remarks, Central Bank Governor Şahap Kavcıoğlu implied that the bank would cut rates one more time this month before stopping for several months.

“The accompanying statement suggests that the easing cycle will be on pause early next year but, even so, the lira will remain under pressure,” the Capital Economics consultancy said in a research note.

The lira was trading at 15.60 against the dollar, 5 percent weaker from Dec. 15’s close.

The bank has intervened four times in recent weeks by selling off foreign currency in a bid to prop up the lira, citing “unhealthy price formations.” The total amount of the bank’s FX markets interventions rose to approximately $4 billion, according to media reports.

The Central Bank announces foreign exchange interventions to the public on the same day, while the exact figures are usually published in 15 days.

“National income data and leading indicators show that domestic economic activity remains strong, with the help of robust external demand,” the MPC also said.

Erdoğan repeatedly said there was “no turning back” from the new policy direction, one he pledged would free the country from the “trap” of exchange rates, inflation and interest rates.

Turkey’s annual inflation stood at 21.31 percent in November, while the 12-month average rise in consumer prices was 17.71 percent.​​​​​

The Central Bank’s medium-term inflation target is 5 percent.

Interest Rates, Economy,