Turkish Central Bank Rate Cut
February 23, 2023
The Central Bank of Turkey‘s policy interest rate has swung widely since 2019. In 2020 when the pandemic first hit, the rate was initially cut by a total 375 basis points to 8.25% in January-May but then hiked 1,075 basis points to 19.0% by March 2021. Later that year, the rate was slashed 500 basis points in September-December and by an additional 500 basis points in August-November of 2022 to 9.0%. With so much rate reduction, Turkey regressed into a vicious cycle of domestic price inflation and lira depreciation, and officials had decided to stop easing. The horrific earthquakes that Turkey has experienced modified that intention once again, but today’s 50-basis cut to 8.5% represents a modest reaction to that disaster. With inflation running at 57.7% for consumer prices and 86.5% for producer prices, they want to be cautious, and today’s statement accentuates Turkey’s upside growth potential:
While the earthquake is expected to affect economic activity in the near term, it is anticipated that it will not have a permanent impact on performance of the Turkish economy in the medium term. …The current monetary policy stance after the measured reduction is adequate to support the necessary recovery in the aftermath of the earthquake by maintaining price stability and financial stability.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Bank of Turkey
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