Central Bank of Turkey cuts key rate to 13%

Due to the slowdown in economic activity, the Central Bank of Turkey (CBRT) lowered its key rate by 100 basis points to 13%. The rate has been at 14% since December 2021. Against the backdrop of the regulator’s decision, the Turkish lira fell against the dollar.

“The leading indicators for the third quarter point to a slight slowdown in economic activity. At a time when global growth uncertainty and geopolitical risks are on the rise, it is important that financial conditions are supportive in terms of sustaining the acceleration in industrial production and the upward trend in employment. Within this framework, the Board decided to cut the discount rate by 100 basis points and assessed that the updated discount rate is sufficient in accordance with the current forecast,” the statement said. CBRT.

A number of Turkish economists believe that the regulator should raise the interest rate, as the lira depreciates due to low rates. So, one of the leaders of the insurance company Allianz and Barclays, Mohamed El-Erian, said that in Turkey “the fundamental laws of the economy are being ignored.”

In November 2021, Turkish President Recep Tayyip Erdogan promised fight for rate cuts.

In January of this year, after the regulator lowered the interest rate to 14%, he informedthat “the exchange rate of the Turkish lira has stabilized.” In his opinion, this happened, as inflation is reduced, subject to lower interest rates. This is the principled position of Recep Tayyip Erdogan. In two years, he fired three heads of the Central Bank after the regulator raised the rate.

After the decision of the regulator, the Turkish lira fell to 18.07 lira per dollar from 17.97. At the end of January, the lira exchange rate on the stock exchange was at the level of 13.5 lira per dollar, at the end of February – 14 lira.

Inflation in Turkey rose to 79.6% in July, hitting an all-time high since 1998. This is evidenced by the data of the statistical institute (Turkstat). In 2021, after the CBRT repeatedly cut the key rate, inflation accelerated to 36.1%.

Polina Sobakina