The growing currency crisis in Turkey seems to be gaining market focus today after the central bank announced an interest rate cut.
The Central Bank of the Republic of Turkey (CBRT) has reduced its policy rate (one-week repo) by 100 basis points to 15% despite its inflation rate rising by almost 20% in October.
The figure is the highest ever recorded since January 2019 and far exceeds the central bank’s target of 5%.
The decision was made following pressure from Turkish President Tayyip Erdogan who has repeatedly called for the central bank to lower interest rates.
Endorgan takes a different view than the others, that lower rates are the only way to curb the inflation spike.
Even so, he’s not the only one who thinks so, given that his central bank chief is also hinting at the next cuts next month.
The rate cut by the CBRT has pushed the Turkish lira to plummet to an all -time low, causing it to trade 11.11 against the US dollar.
The bank has cut interest rates by 400 basis points since September, resulting in the erosion of the credibility of monetary policy. The lira has fallen over 30% against the US dollar in 2021.
