Turkish Central Bank Rate Cut of 50 Bps Unpopular

November 20, 2008

The benchmark rate was cut unexpectedly to 16.25% from 16.75%. A released statement argued that disinflationary forces are falling into place and will produce a more rapid drop than anticipated previously. Consumer prices had climbed 12% in the year to October. Officials cited the global credit crunch, weaker domestic activity, and lower commodity prices. The Turkish lira fell sharply in response and is down over 30% against the U.S. dollar since mid-2008. Aside from double-digit inflation, Turkey runs a current account deficit of more than 6% of GDP and has applied for IMF aid. Earlier this year, the central bank had twice raised its key rate by 50 basis points, and the cut restores the level that existed prior to June 19th.

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