Turkey’s central bank governor sees room for more interest rate cuts

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Turkey's Central Bank Governor Murat Uysal

Turkey’s central bank cut its inflation forecasts on Wednesday and new governor Murat Uysal said it has “considerable” room for maneuver on interest rates in coming months, a week after it began an expected policy easing cycle with a big cut, Reuters reported.

Uysal — appointed this month after President Recep Tayyip Erdoğan dismissed his predecessor — also said the bank had independence in its use of tools to reach its inflation target.

Periodic doubts about the bank’s freedom from political interference resurfaced after Murat Çetinkaya’s abrupt sacking. Erdoğan said the former bank governor had failed to follow instructions.

The upbeat comments by Uysal, who was Çetinkaya’s deputy, set the scene for more rate cuts over the next months, especially if a spreading monetary easing trend among major central banks continues to stabilize the Turkish lira after its meltdown last year.

The lira was up 0.6 percent at 5.53 against the dollar at 1246 GMT, on track for a sixth straight day of gains.

“In the upcoming period we have a considerable room for maneuver on rates. Its application, timing and size will depend on the improvements on price and financial stability,” Uysal said. “We will make [the decision] based on data.”

The central bank hiked its policy rate to 24 percent at the peak of last year’s currency crisis. High rates, along with companies burdened with large amounts of foreign currency debt, drove the economy into recession and cut nearly 30 percent from the value of the lira.

It also sent inflation soaring above 25 percent. It has since fallen to below 16 percent, paving the way for the bank to cut rates last week by 425 basis points to 19.75 percent.

On Wednesday the bank cut its inflation forecast for 2019 to 13.9 percent from 14.6 percent but left next year’s outlook unchanged at 8.2 percent. Uysal said policy would depend on the inflation outlook.

In a separate publication of the minutes of the bank’s policy meeting last week, it said there was a risk that inflation would not edge lower as expected.

Asked at a press conference about Çetinkaya’s sacking, Uysal said it had met legal requirements.

He also said the central bank had a more optimistic outlook for the economy in 2020 as lira volatility ebbed.

“The delayed, cumulative effects of the exchange rate slowly being left behind is turning our expectations for 2020 to a positive trajectory,” he said.

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