to be Turkish Central Bank (Cbrt) surprises the markets Reduce interest rates from 14% to 13%despite annual inflation hitting 79.6% last month, the highest level in 24 years. Experts were waiting for the central bank to decide to leave the benchmark interest rate unchanged, as decided last month.
Turkey takes the opposite path to other central banks
Although unanticipated by analysts, the move follows the path set for regarding eight months, according to the unorthodox belief backed by the Turkish president. Recep Tayyip Erdogan that interest rate cuts can curb the sharp decline turkish lira (now $0.055) and the price spiral. Turkey’s strategy of countering rising prices goes once morest the global trend of other central banks raising interest rates.
Turkey’s central bank, meanwhile, is using macroprudential and safeguards measures, such as increasing risk weights and doubling banks’ reserve requirements for lira-denominated loans, to dampen credit. A line of monetary policy that Turkey is pursuing at the moment the country with the most negative real interest rates in the world.
For the central bank, the rise in inflation is “determined by the delayed and indirect effects of the rise in inflation energy costs geopolitical developments, the impact of prices not supported by economic fundamentals, strong negative supply shocks caused by increases in world prices for energy, food and agricultural commodities”.
The Council of Central Bank of the Republic of Turkey, states the decision, “provides that the process of disinflation will be launched following the measures decided and implemented to strengthen sustainable financial and price stability as well as the resolution of the ongoing regional conflict”. However, they write of CBRT: “Leading indicators for the third quarter point to some loss of momentum in economic activity. It is important that financial conditions remain favorable to support the momentum of industrial production growth and positive employment trends at a time of growing uncertainty, global growth and increasing geopolitical risk”. (All rights reserved)
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