The Central Bank of Turkey cut its benchmark interest rate by 75 basis points, beating most economists’ forecasts and risking a possible liquidation of the pound.
The Bank of Ankara cut its one-week lending rate to 11.25% from 12%, according to a decision taken on 15th January. Turkey’s primary interest rate, minus inflation of 11.8%, is now negative, making assets denominated in lira less attractive.
In its reasoning, the central bank cited improved inflation prospects, weak investment, and weak global economic activity.
As the President Erdoğan said earlier Thursday that the central bank had another opportunity to cut rates at today’s meeting.
Economists were almost evenly divided on whether the central bank would cut rates, according to polls conducted by Reuters and the state-run Anadolu news agency. Those expecting a cut more commonly predict a 50-basis point cut.
President Erdoğan claims that higher interest rates are inflationary, an opinion that is in contradiction with conventional economic theory. Consumer price inflation in Turkey accelerated from 8.6% in October but is less than half the levels reached in the aftermath of the currency crisis.
Economists predict that inflation could slow to around 9.5% in 12 months, according to a central bank survey released earlier in January 2020.
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