TCMB said that the current monetary policy stance remains consistent with the projected disinflation path/Bloomberg
by Kudakwashe MuzoriwaTürkiye Cumhuriyet Merkez Bankası (TCMB), the Turkish central bank, has reduced its key interest rate by 75 basis points to 11.25 per cent, the smallest interest-rate cut since the central bank embarked on an easing cycle under a new governor in July 2019.
TCMB stated that considering all factors affecting the inflation outlook, the Monetary Policy Committee decided to make a measured cut in the policy rate. The central bank added that the current monetary policy stance remains consistent with the projected disinflation path.
The Turkish central bank’s fifth straight interest rate cut which lowered its benchmark one-week repo rate from 12 per cent, said that inflation should slide more than what economists expect in 2020, clearing the way for last week’s cut and perhaps more in the months ahead.
“The improvement in macroeconomic indicators, inflation in particular, supports the fall in the country risk premium and helps contain cost pressures,” said TCMB.
Reuters reported that inflation has dropped from more than 25 per cent after a currency crisis in 2018 that reduced the Turkish lira’s value by nearly 30 per cent and the brief recession that followed saw economic growth disappearing in 2019.
The central bank responded to the crisis by raising its policy rate to 24 per cent where it had stayed until July 2019 of last year.
Despite the unprecedented scale of easing under Murat Uysal’s watch, the new governor has not been successful in turning investors towards Turkey while winning praise from President Recep Tayyip Erdogan, who wants lower borrowing costs to stimulate the economy.
The Turkish president, who’s repeatedly said that rates will fall below 10 per cent in 2020, believes higher borrowing costs cause rather than prevent inflation.
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