Reuters poll expects deeper cut in Turkey’s interest rates

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The Turkish Central Bank is expected to cut its key interest rate by 250 basis points from its current 24 percent on July 25, a Reuters poll showed on Friday, with dovish comments from the new bank governor encouraging expectations of a significant reduction.

President Recep Tayyip Erdoğan sacked central bank Governor Murat Çetinkaya on July 6, reigniting concerns over political interference in monetary policy and boosting expectations of rate cuts to revive the recession-hit economy.

The median forecast compiled from 23 institutions showed economists expected a 250 basis point rate cut in the policy rate at this month’s meeting, with forecasts ranging between cuts of 100 and 500 basis points in the one-week repo rate.

A previous Reuters poll last week had already shown that economists expected deeper rate cuts this year after Çetinkaya’s dismissal. The median forecast then was for a 200 basis point cut on July 25.

Turkey’s benchmark interest rate was hiked to 24 percent last September to stem a sharp fall in the lira. The central bank has since left it unchanged as the economy tumbled into recession, to prevent renewed losses in the currency.

Murat Uysal, Çetinkaya’s deputy, replaced him as governor.

Uysal hinted at rate cuts in his first remarks after taking office, saying he expected disinflation to continue in 2019 on the back of declining cost pressures.

The consumer price index fell to 15.72 percent year-on-year in June, off a 15-year-high above 25 percent in October. It was fueled by a currency crisis that resulted in the lira losing nearly 30 percent of its value against the dollar last year.

Investors have long been concerned about Erdoğan’s influence over monetary policy, given his opposition to high interest rates. They also accuse the central bank of acting slowly to defend the lira at the time of the currency crisis.

The median estimate in the Reuters poll for the central bank’s year-end policy rate was 18 percent, down from a forecast of 20 percent in last week’s poll.

The latest forecasts ranged between 15 and 20 percent. The central bank will announce its policy rate decision on July 25 at 1100 GMT.

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