Turkey’s central bank trimmed its key interest rate by 75 points to 11.25 percent on Thursday as expected, its most restrained move since it began easing in July, suggesting monetary stimulus was winding down as the economy recovers from recession, Reuters reported.
In a statement, the bank called the cut “measured” and said inflation is headed “broadly in line” with its earlier forecast of 8.2 percent by year end. “The current monetary policy stance remains consistent with the projected disinflation path,” it said.
The Turkish lira initially firmed to 5.8600 against the dollar after the announcement, from 5.8775 earlier.
Inflation has dropped from a peak above 25 percent in the wake of a 2018 currency crisis that sliced the Turkish lira’s value by nearly 30 percent. The brief but sharp recession that followed saw economic growth all but disappear in 2019.
The central bank responded to the crisis by hiking its policy rate to 24 percent, where it had stayed until July of last year.
As he aggressively slashed rates in the second half of 2019, Central Bank Governor Murat Uysal said monetary policy was tied to a “reasonable” real rate of return. The real rate remains in positive territory when measured against expected inflation.
Turkish President Recep Tayyip Erdoğan, a self-described “enemy” of interest rates, fired Uysal’s predecessor for not following instructions. He says he believes high rates stoke inflation, counter to monetary theory, and has said they will fall in Turkey to single digits in 2020.
