Economist says Central Bank’s decision to cut policy rate was political

On Thursday, the Turkish Central Bank lowered interest rates despite inflation being at 80 percent, a 24-year-high. After the unexpected move by the Central Bank to decrease the policy rate to 13 percent, the Turkish Lira declined 1 percent.

The Turkish economy emerged from the pandemic with one of the fastest growth rates in the G20 but the central bank is warning of a loss of momentum in the start of the third quarter.

In June, President Erdogan promised that the rate cuts would continue. Bloomberg economist Selva Bahar Baziki says that she cannot see any economic motivation behind the Central Bank’s move and that they opted for the decision of the political leadership.

The Turkish Lira is one of the top five worst performers against the US dollar this year. Last month, the business conditions among Turkish manufacturers were the worst since May 2020, the first wave of the coronavirus pandemic. The threat of recession in Europe creates a big worry since Europe is the main destination of Turkish exports.