ISTANBUL: Turkey’s central bank cut its policy rate by 325 basis points to 16.5 percent on Thursday, delivering its second aggressive policy easing in less than two months as it seeks to boost a recession-hit economy and forget last year’s currency crisis.
The bank cited a recent decline in inflation and a global shift to easier monetary policy as it lowered its benchmark one-week repo rate from 19.75 percent, marking its latest step away from the emergency settings adopted last year.
The policy rate stood at 24 percent as recently as July, when the bank slashed interest rates by 425 points in its first policy change since the depths of the crisis, which tipped the largest economy in the Middle East into recession.
“At this point the current monetary policy stance, to a large part, is considered to be consistent with the projected disinflation path,” the bank said in a statement.
The “inflation outlook continued to improve” and in August “displayed a significant fall,” it added.
The Turkish lira lost some 30 percent of its value against the dollar last year and inflation soared to a 15-year high above 25 percent. Inflation has since eased to 15 percent and is expected to fall briefly to single digits in October thanks to the “base effect” measurement against last year’s spike.
The drop in inflation and a shift among the world’s major central banks to more accommodation has stemmed further losses in the lira and paved the way for rate cuts, set to continue until the year’s end.
The lira firmed to 5.6825 against the dollar after the announcement from 5.75 beforehand, and was up about 1 percent on the day.
According to a Reuters poll on Tuesday, economists expected the bank to lower rates by a median of 250 basis points. However before the decision, swap-market traders were expecting a cut of between 300 and 400 points.
The central bank’s governor, Murat Uysal, apponted in early July after his predecessor did not follow policy instructions, has said policy will aim to deliver a “reasonable” real interest rate.
Turkey’s President Recep Tayyip Erdogan is a self-described “enemy” of high interest rates and has said they, along with inflation, would fall to single digits soon.
On Thursday, the central bank said a “cautious” policy stance was necessary to keep the “disinflation process on track.” It added that inflation will likely slide “slightly below” its year-end forecast of 13.9 percent, which it made in July.
Ankara has attempted to boost lending by state banks to reinvigorate an economy that entered a recession last year and experienced contractions in the first two quarters of this year.
