Turkish central bank cuts interest rates again

Turkey’s central bank cut its benchmark rate for the fifth time in six months, as its new governor continued to ease policy. The bank cut its key rate to 11.25 percent from 12 percent.

Duvar English / Reuters

Turkey’s central bank trimmed its key interest rate by 75 points to 11.25 percent on Jan. 16 as expected, its most restrained move since it began easing in July, suggesting monetary stimulus was winding down as the economy recovers from recession.

The bank cut its benchmark one-week repo rate from 12 percent, pushing real rates into negative territory for locals with lira deposits after the main year-over-year inflation measure rose to 11.8 percent in December.

The median of a Reuters poll saw a 50-point cut, with one camp of economists predicting 100 points and another expecting the bank would stand pat given inflation strength and lira weakness toward the end of 2019.

Inflation has dropped from a peak above 25 percent in the wake of a 2018 currency crisis that cut the Turkish lira’s value by nearly 30 percent. The brief but sharp recession that followed saw economic growth all but disappear in 2019.

The central bank responded to the crisis by hiking its policy rate to 24 percent, where it had stayed until July of last year.

As he aggressively slashed rates in the second half of 2019, Central Bank Governor Murat Uysal said monetary policy was tied to a “reasonable” real rate of return.