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Turkish Central Bank sharply cuts interest rates

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Turkey’s central bank has cut its benchmark interest rate by 2.5 percentage points, deeper than economists had expected, citing an improving inflation outlook, the Financial Times reported.

Slowing inflation and US President Donald Trump’s decision on Wednesday to lift economic sanctions on Turkey for its military offensive in Syria have helped the lira recover and provided space for the central bank to continue its cutting cycle, according to analysts.

“Inflation outlook continued to improve. In addition to the stable course of the Turkish lira, improvement in inflation expectations and mild domestic demand conditions supported the disinflation in core indicators,” the central bank said on Thursday.

The monetary policy committee cut its one-week repo rate to 14 percent from 16.5 percent in its third straight reduction since July, when the rate was 24 percent to slow double-digit inflation and ease a tumble in the lira after financial turmoil in 2018.

Economists had expected a 1 percentage point cut on Thursday, according to the median estimate in a Reuters poll of 20 economists.

The lira slumped after the larger-than-expected cut in key Turkish rates, before steadying to a more modest decline. It was recently trading down around 0.4 per cent against the US dollar at TL 5.754.

Turkey launched a military operation in northeast Syria earlier this month to attack US-allied Kurdish militants, prompting Trump to announce a set of economic penalties. Turkey then agreed to a ceasefire, which it effectively extended this week after striking a deal with Russia to remove the militants from an area south of its border.

Trump on Wednesday said he was scrapping the sanctions, which targeted Turkish government ministers and bilateral trade, helping Turkish assets recover.

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