Turkey Cuts Interest Rate by 100bps to 13%
The Central Bank of Turkey unexpectedly cut its interest rate by 100bps to 13% in its August 2022 meeting, surprising markets that expected rates to remain steady at 14%, and signaled that it would continue to promote the use of the lira in the Turkish economy.
It was the first interest rate cut following seven consecutive decisions to hold the rate constant, adding to the 600bps in interest rates slashes since September of 2021.
The decision to lower borrowing costs was made despite a plunging lira, soaring consumer prices, and an unbalanced current account.
Inflation rose to 80% in July, the highest since 1998, largely due to surging costs of importing energy. The lira has plunged over 50% since the start of the central bank’s rate-cutting cycle last year.
The Board foresees that the disinflationary process will begin with the resolution of military conflict in Ukraine and further measures to promote usage of the lira in Turkey.
