Central Bank Rate Reduction in Turkey

February 19, 2020

The Central Bank of Turkey engineered its sixth and most “measured” cut of the one-week repo rate of an easing cycle that began last July. From August 2018 until then, the rate had been kept at a stratospheric 24%, and 13.25 percentage points above the new rate level of 10.75%, which happens to be represent a 21-month low. The initial cut of 425 basis points was followed by a second of 325 bps in September, a third of 250 bps in October, a fourth of 200 bps in December, and a fifth of 75 bps in the first month of 2020. Rampant inflation in 2018 caused by rapid lira depreciation has prompted several tightenings of monetary policy, culminating in a 625 basis point hike in August of that year.

A released statement from Turkey’s Monetary Policy Committee observes an improving inflation outlook and current account situation, some signs of recovery in activity, but continuing weak trends in business investment and jobs. “The Committee assesses that maintaining a sustained disinflation process is a key factor for achieving lower sovereign risk, lower long-term interest rates, and stronger economic recovery. Keeping the disinflation process in track with the targeted path requires the continuation of a cautious monetary stance.”

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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