The Turkish lira fell to a record low after the central bank surprisingly cut the key interest rate on Thursday and caused new turbulence in the market, Bloomberg reports. Only one of the 23 economists asked by the agency predicted that the central bank would keep the interest rate unchanged at 19%, but the decision was to reduce it by 1 percentage point.
In August, inflation in our southern neighbor unexpectedly rose to 19.25 percent, pushing real interest rates below zero for the first time since October. But the new governor, appointed by President Recep Tayyip Erdogan, has decided to focus only on the consumer price index, which excludes volatile products such as food and energy and is 250 basis points lower – allowing itself to justify the central bank’s decision to ” listen to “Erdogan and cut interest rates.
The president has promised lower borrowing costs and lower inflation this month – and default could cost the governor. Shahap Kavcioglu is the fourth governor of the Turkish central bank since 2019.
Following the decision, the central bank indicated that the increased prices were due to temporary factors.
The move risks causing another depreciation of the Turkish currency, which has already weakened by more than 16 per cent against the US dollar since March 20th, when Kavjoglu took office.
On Thursday, it fell 1.7 percent against the dollar to 8.8017. The main stock index erased the growth of the day and fell by 0.9%.
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