Turkey makes a shock cut in interest rates despite inflation, reports the Bloomberg news agency. This is not the first decision of its kind, but previous cuts were made last year. As of December 2021, the main rate was 14%. Now it is at 13 percent.
It is worth noting that prices in the country to which Poles go on vacation so willingly are growing at the highest pace in 24 years. Inflation is almost 80%. This does not prevent bankers from lowering the cost of money.
The interest rate cut has had an immediate effect on the Turkish currency, which has depreciated sharply and is close to historically low levels. The dollar exchange rate just broke the 18 lira mark.
Bloomberg notes that all the economists questioned before the bank’s meeting, and there were 21 of them, indicated that interest rates would not be changed. So we are dealing with a big surprise. An eloquent comment on this incomprehensible interest rate cut in Turkey in social media was left by mBank’s economists.
In a press release, the Bank of Turkey stressed that the cut does not start a longer cycle of monetary policy easing. He indicated that “the updated level of the interest rate is appropriate in the present situation”.
“It is important that financial conditions support the industrial production growth momentum and positive employment trend in a time of increasing uncertainty about global growth as well as escalating geopolitical risk,” the bank said.
Erdogan does what he wants
Bloomberg notes that the sudden resumption of monetary stimulus less than a year before the election reflects Turkish authorities’ determination to deliver on President Recep Tayyip Erdogan’s promise in June that rate cuts will continue.
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Erdogan wants to accelerate economic growth by focusing on exports and jobs within what it calls “the new economic model“.
Experts speculate that the interest rate cut may have emboldened the increase in reserves at the disposal of the Turkish central bank. It has to do with with the last one large inflow of capital from Russia.