Turkish President Tayyip Erdogan arrives for a NATO summit in Madrid, Spain, June 29, 2022.
Nacho Doce | Portal
Turkey’s central bank shocked markets on Thursday by cutting its key interest rate, despite inflation in the country nearing 80%.
The country’s currency, the lira, slipped 0.9% against the dollar to trade at more than 18.1 against the greenback after the news – near a record low.
The country’s main interest rate, which had stood at 14% for the past seven months, was cut to 13%, in a stark contrast to what other central banks around the world are doing.
“Another idiotic move,” commented Timothy Ash, senior emerging markets strategist at BlueBay Asset Management.
“Insane with inflation at 80% and still increasing CBRT rate cuts, against expectations by 100 basis points to just 13%,” he wrote on Twitter, referring to the acronym for Turkey’s central bank.
“Ridiculous move. Obviously they have Russian and Gulf cash in their pockets and think they can cut rates and hold the lira.”
Analysts did not expect interest rates to change; The central bank’s move down has caught markets by surprise. The main BIST index saw gains and traded 0.8% lower after the decision, according to Portal data.
Turkey’s inflation for the month of July rose a staggering 79.6% year-on-year, the highest in 24 years, as the country grapples with rising food and energy costs and President Recep Tayyip Erdogan’s longstanding unorthodox monetary policy stance .
Soaring consumer prices have hit the population of 84 million hard, and few have hope of recovery any time soon thanks to the Russia-Ukraine war, high energy and food prices and a severely weakened lira.