Turkey's central bank cuts rate 325 points in second easing move

A drop in inflation and a shift among major central banks to more accommodation has paved the way for Turkish rate cuts.

    The Turkish lira rose against the US dollar following the announcement, climbing 1.2 percent to 5.67 [File: Murad Sezer/Reuters]
    The Turkish lira rose against the US dollar following the announcement, climbing 1.2 percent to 5.67 [File: Murad Sezer/Reuters]

    Turkey's central bank has cut its policy rate by 325 basis points to 16.5 percent, its second marked policy easing in two months as it seeks to boost a recession-hit economy in which inflation has recently eased.

    On Thursday, the bank lowered its benchmark one-week repo rate from 19.75 percent, marking its latest step away from emergency settings it adopted during last year's currency crisis.

    The policy rate stood at 24 percent as recently as July, when the bank slashed rates by 425 basis points in its first policy change since the depths of last year's crisis, which tipped the largest economy in the Middle East into recession.

    A recent drop in inflation and a shift among the world's major central banks to more accommodation has supported the lira and paved the way for Turkish rate cuts, which are set to continue until year end.

    Thursday's rate cut was deeper than predicted by economists polled by Reuters and Bloomberg, who expected a lowering of a median of 250 and 275 basis points, respectively.

    However, before the decision, swap-market traders were expecting a cut of between 300 and 400 basis points.

    The Turkish lira rose against the dollar following the announcement, climbing 1.2 percent to 5.67.

    The lira lost some 30 percent of its value against the dollar last year and inflation soared to a 15-year high above 25 percent. Inflation has since eased to 15 percent and is expected to fall briefly to single digit in October thanks to the "base effect" measurement against last year's spike.

    Central bank Governor Murat Uysal, appointed by Turkish President Tayyip Erdogan in early July after his predecessor did not follow policy instructions, has said the policy will aim to deliver a "reasonable" real interest rate.

    Erdogan is a self-described "enemy" of high interest rates and has said they, along with inflation, would fall to single digits in a short time.

    The government has attempted to boost lending by state banks to reinvigorate an economy that entered a recession last year and experienced contractions in the first two quarters of this year.

    SOURCE: Al Jazeera and news agencies