Shock interest rate cut from Turkish CB despite soaring inflation

Shock interest rate cut from Turkish CB despite soaring inflation
Update: 18 August 2022 18:38
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Turkish Central Bank cut its policy rate 100 basis points further down to 13 percent to keep momentum of growth as inflation peaks to 80 percent in the country

Turkey’s Central Bank came up with a surprise decision to decrease its policy rate 100 basis points down to 13 percent on Thursday saying it aims to drive economic growth and sustain employment amid growing geopolitical risk, Reuters reported.

Even as the inflation peaked to 80 percent, the central bank said the cut was necessary because rising loan rates have diminished the effectiveness of monetary policy.

"It is important that financial conditions remain supportive to preserve the growth momentum in industrial production and the positive trend in employment in a period of increasing uncertainties regarding global growth as well as escalating geopolitical risk," the bank's monetary policy committee said in a statement.

“Accordingly, the Committee has decided to reduce the policy rate by 100 basis points, and has assessed that the updated level of policy rate is adequate under the current outlook,” the statement said. 

The decision sparked instant reaction on Twitter, as the US dollar spiked over 18 liras for the first time since weeks.  

Financial Markets Executive Iris Cibre said that 31 of the 37 central banks this year increased interest rates but only Russia, China and Turkey exercised a rate cut, but inflation in China was 2,7 percent and in Russia was 15 percent. 

“This means taking an entire country to the edge of a cliff,” she said. 

“They manage to do worse every month” said Hakan Kara, former chief economist of the central bank.