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Turkey shocks markets with interest rate cut despite inflation near 80%

Turkey shocks markets with interest rate cut despite inflation near 80%

Turkish President Recep Tayyip Erdogan arrives at the NATO Summit in Madrid, Spain, June 29, 2022.

Nacho Dossey | Reuters

Turkey’s central bank shocked markets on Thursday with a benchmark interest rate cut, even though the country’s inflation was close to 80%.

country currency poundslipped 0.9% against dollaris trading at over 18.1 per dollar after the news – near a record low.

The country’s main policy rate, which has been at 14% for the past seven months, has been lowered to 13% in an exact no match with what other central banks are doing around the world.

“Another foolish move,” commented Timothy Ash, senior emerging markets analyst at BlueBay Asset Management.

“Crazy with inflation at 80% and the Turkish central bank still raising interest rates, against expectations by 100 basis points to only 13%,” he wrote on Twitter, referring to the Turkish Central Bank by his acronym.

“A ridiculous move. They obviously got cash in their pockets from Russia and the Gulf and think they can cut interest rates + keep the lira.”

Analysts expect the interest rate to remain unchanged. The central bank’s move surprised lower markets. The benchmark BIST index snapped the session’s gains to trade 0.8% lower after the decision, according to Reuters data.

Turkey’s inflation rate for July rose 79.6% year-on-year, its highest level in 24 years, as the country grapples with rising food and energy costs and President Recep Tayyip Erdogan’s unconventional long-term strategy on monetary policy.

High consumer prices have taken their toll on the population of 84 million, few of whom hope to improve any time soon thanks to the Russo-Ukrainian war, rising energy and food prices, and a sharply weak lira.

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