Turkey's Central Bank Shocks With 100 Basis Point Rate Cut Despite Soaring Inflation  

 

• Turkey's central bank shocked markets on Thursday, August 18, 2022, by cutting its main interest rate by 100 basis points to 13%, saying it needed to keep driving economic growth despite inflation hitting nearly 80% and a monetary tightening trend among its peers worldwide.
• The lira dropped as much as 1.2% as the bank took its latest step down the unorthodox policy path advocated by President Tayyip Erdogan that aims to provide targeted cheap credit to help boost Turkish exports.
• There had been virtually no signal that another rate cut was in the works and no economist polled by Reuters had predicted one, given that inflation has soared to 24-year highs, eating deeply into Turks' earnings and savings.
• The bank had held its main rate at 14% for the past seven months after cutting it by 500 basis points towards the end of last year. That policy easing sparked a currency crisis in December that sent inflation soaring.
• The rate cuts long urged by Erdogan - who holds sway over the bank after ousting several of its governors in recent years - have left real interest rates in deeply negative territory and have accelerated a cost-of-living crisis for Turkish households. However, the central bank's policy-setting committee said it needed to act because leading indicators pointed to a loss of economic momentum in the third quarter.

(Source: Reuters)