Turkey’s central bank delivers 9th consecutive policy rate cut

By Monitoring Desk

Ankara: The Turkish central bank on Thursday trimmed its main interest rate again by half a percentage point to 8.25 percent after the recent rally in the Turkish lira.

The one-week repo auction rate was trimmed by 50 basis points, it said, marking the ninth consecutive cut and in line with the Bloomberg consensus.

The lira has been gaining value against the US dollar after reaching a record low earlier this month following the announcement by the bank that Qatar and Turkey had extended a 2018 swap amendment agreement.

The overall limit was increased from $5 billion equivalent of Turkish lira and Qatari riyal to $15 billion, it said on Wednesday.

The bank called its ninth straight rate cut “modest” and said there were signs that Turkey’s economy may have bottomed out earlier this month after a cratering of activity in April due to measures to contain the outbreak.

The move comes despite investor concerns over Turkey’s depleted FX reserves that pushed the Turkish lira to an all-time low on May 7.

The currency has since rallied on expectations of foreign funding, easing the risk of inflation.

The lira is down about 13 percent so far this year but was flat after the monetary easing, which drove Turkish real rates deeper into negative territory for lira depositors.

The central bank said cheap commodities prices should keep inflation in line with its forecast of 7.4 percent by year end, despite recent lira depreciation caused by “global developments.”

While there was a “pronounced” economic weakening in April, the bank said there are signs in the first half of May “of bottoming-out following the steps taken towards partial normalization.”

It was monitoring normalization steps in other countries, and expects the current account balance to follow a “moderate course” this year as imports are restrained, it added.

Fallout from the outbreak has hammered domestic demand, tourism and exports and is expected to tip the economy into its second recession in less than two years.

The move will be welcome for the economy now at risk of recession because of the coronavirus pandemic, although Ankara is seeking further swap agreements with the US Federal Reserve and other foreign central banks.

The Turkish currency stood at 6.79 to the dollar after the bank´s announcement.

The bank said despite the lira´s recent depreciation because of “global developments”, crude oil and metal prices affected “inflation outlook favourably”. Inflation last month fell to 10.94 percent from 11.86 percent in March.

The bank in April revised inflation expectations for 2020 year-end to 7.4 percent from 8.2 percent in its quarterly inflation report briefing on April 30.

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