Turkiye central bank cuts interest rate to 14% as part of anticipated cut

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Since September, the Turkiye Monetary Authority has lowered the key rate by 500 basis points.

The bank stressed that economic activity is robust thanks to strong external demand. (Reuters)

Turkiye’s central bank lowered its repo rate to a benchmark week by 100 basis points from 15% to 14%, in line with market expectations.

With the latest cut, the monetary authority has cut the key rate by 500 basis points since September.

In previous statements, the bank has signaled it will cut rates once more this month before stopping in January.

“The increase in inflation in November is due to changes in exchange rates and supply-side factors such as rising world prices for food and agricultural products, supply constraints,” he said. the bank said, noting the inflationary pressures.

The bank also said it had made the decision to “supplement the use of the limited room for maneuver implied by the transient effects of supply-side factors and other factors beyond the control of monetary policy on price increases “.

Citing national income data and leading indicators, the bank also pointed out that economic activity is robust thanks to strong external demand.

He also said that the rapid roll-out of vaccination in Turkiye this year has paved the way for services, tourism and related sectors to enable a more balanced composition of economic activity.

The Bank’s focus on the current account balance

The bank said the current account balance is expected to show a surplus in 2022 due to the upward trend in exports.

“The strengthening of the trend towards improving the current account is important for the objective of price stability, and in this regard, the development of commercial and consumer loans is closely monitored,” he said. declared.

The bank also underlined that it would follow political decisions during the first quarter of 2022, adding: “All aspects of the policy framework will be reassessed in order to create the basis for lasting price stability.”

In November, Turkiye recorded a 21.31% annual increase in consumer prices, while the bank maintained its medium-term inflation target of 5%.

The bank intervened in foreign exchange markets four times this month, selling dollars, citing “unhealthy price formations”.

With the latest intervention, the total amount of the bank’s intervention in foreign exchange markets increased to around $ 4 billion.

The president’s opposition to high interest rates

President Erdogan said Turkiye had abandoned the monetary policy based on high interest rates that had stagnated several developing countries, instead he switched to a growth strategy aimed at investment, jobs. , production and exports.

Although the Central Bank is an independent institution, its recent interest rate cuts are in line with President Erdogan’s oft-stated opposition to higher interest rates, with the mantra: “We will remove the burden from high interest rates. interest at the expense of our people.

He had previously declared that there was “no turning back” to the new political orientation, which he had promised to free the country from the “trap” of exchange rates, inflation and interest rate.

Affirming an economic model based on lower interest rates, Erdogan argued that high borrowing costs “demolish” domestic production and make structural inflation permanent by raising production costs.

Source: TRTWorld and agencies



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