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Turkish central bank cuts policy rate by 50 pts, eyes normalization: report

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Turkey’s central bank cut its policy rate by 50 basis points to 8.25 percent as expected on Thursday, taking advantage of recent lira strength to keep supporting an economy that it said may be emerging from the worst of the coronavirus pandemic, Reuters reported.

The bank called its ninth straight rate cut “modest” and said there were signs that Turkey’s economy may have bottomed out earlier this month after a cratering of activity in April due to measures to contain the outbreak.

The benchmark one-week repo rate was lowered from 8.75 percent, continuing the central bank’s aggressive easing cycle that began last July when it stood at 24 percent.

In a Reuters poll of 15 economists, the median estimate was for a cut of 50 basis points, with estimates ranging between cuts of 25 to 100 points.

The move comes despite investor concerns over Turkey’s depleted FX reserves that pushed the Turkish lira to an all-time low on May 7. The currency has since rallied on expectations of foreign funding, easing the risk of inflation.

The lira is down about 13 percent so far this year but was flat after the monetary easing, which drove Turkish real rates deeper into negative territory for lira depositors.

The central bank said cheap commodities prices should keep inflation in line with its forecast of 7.4 percent by year end, despite recent lira depreciation caused by “global developments.”

While there was a “pronounced” economic weakening in April, the bank said there are signs in the first half of May “of bottoming out following the steps taken towards partial normalization.”

It was monitoring normalization steps in other countries and expects the current account balance to follow a “moderate course” this year as imports are restrained, it added.

Fallout from the outbreak has hammered domestic demand, tourism and exports and is expected to tip the economy into its second recession in less than two years.

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