Read the story here. Advertise at Before It's News here.
Profile image
By (Reporter)
Contributor profile | More stories
Story Views
Last hour:
Last 24 hours:

Turkey surprises with rate cut, lira hits new record lows

% of readers think this story is Fact. Add your two cents.

     Turkey’s central bank lowered its policy rate for the first time in two years, surprising many but not all analysts, saying a revision of its monetary policy stance was needed as past monetary tightening was now dampening credit, domestic demand and commercial loans.
     The Central Bank of the Republic of Turkey (CBRT) cut its policy rate, or the one-week repo auction rate, by 1 percentage point to 18.0 percent in the first rate cut since September 2019.
      Despite recent comments by the bank’s governor, Sahap Kavcioglu, the vast majority of analysts expected the central bank to maintain its rate today as Turkey’s headline inflation is continuing to accelerate and the bank had pledged to keep rates above inflation.
      However, in a conference call with investors on Sept. 1, Kavcioglu omitted earlier pledges of keeping the policy rate above inflation and that tight monetary policy would be maintained decisively.
      A week later, Kavcioglu – who was appointed in March by Turkey’s strong-willed president, Recep Tayyip Erdogan – then shifted the bank’s policy focus to core inflation, which some analysts saw paving the way for lower interest rates as demanded by Erdogan.
     In retrospect, these hints by Kavcioglu – the bank’s fourth governor since 2019 – turned out to foreshadow today’s sharp change in policy.
     Reflecting today’s surprise policy decision, the Turkish lira once again fell to new record lows, ensuring continued upward pressure on import prices and thus inflation.
     The lira plunged 1.25 percent after the rate cut to 8.77 to the U.S. dollar to be down 15.3 percent this year and down 32 percent since the start of 2020.
      Explaining its decision to lower the policy rate, the bank’s monetary policy committee said monetary tightening had a decelerating impact on credit and domestic demand, and a higher-than-expected contractionary effect on commercial loans.
     Turkey’s headline inflation rate rose to 19.25 percent in August, up from 14.97 percent in January and 18.95 percent in July – almost four times the bank’s 5.0 percent medium-term target.
      But core inflation, which strips out energy, food, alcohol and tobacco, eased to 16.7 percent from 17.21 percent in July and from a 2021-high of 17.77 percent in April.
      Formalizing the bank’s abandonment of its earlier guidance, the policy committee today said it would use all available instruments until there are strong signs inflation is declining and the 5.0 percent inflation target is achieved.
      In its August statement the committee had said it would maintain a tight monetary policy stance decisively until there is a significant fall in inflation and the policy rate would be set above inflation.
      Despite the change to the guidance and surprise to financial markets, the committee said it would continue to “take its decisions in a transparent, predictable and data-driven framework.”

     The Central Bank of the Republic of Turkey issued the following press release:

“Participating Committee Members

Şahap Kavcıoğlu (Governor), Mustafa Duman, Elif Haykır Hobikoğlu, Uğur Namık Küçük, Emrah Şener, Semih Tümen.

The Monetary Policy Committee (MPC) has decided to reduce the policy rate (one-week repo auction rate) from 19 percent to 18 percent.

Worldwide speeding up of vaccination rollout, especially in developed countries, supports the global economic recovery. Nonetheless, despite the increase in the vaccination rate, new variants keep the downside risks to global economic activity alive. Strong recovery in global demand, high course of commodity prices, supply constraints in some sectors and rise in transportation costs have led to producer and consumer price increases internationally. Unfavorable effects of weather conditions in major agricultural commodity exporting countries are observed on global food prices. While the effects of high global inflation on inflation expectations and international financial markets are closely monitored, central banks in advanced economies assess that the rise in inflation would be mostly temporary along with normalization in demand composition, easing of supply constraints and waning base effects. Accordingly, central banks in advanced economies continue their supportive monetary stances and asset purchase programs.

Leading indicators show that domestic economic activity remains strong in the third quarter, with the help of robust external demand. The acceleration of domestic vaccination rollout facilitates the recovery in services, tourism and related sectors, which have been adversely affected by the pandemic, and leads to a more balanced composition in economic activity. Favorable external demand conditions and current tight monetary policy impact the current account balance positively. The current account is expected to post a surplus in the rest of the year due to the strong upward trend in exports, and the strong progress in the vaccination program stimulating tourism activities. The improvement in the current account balance is important for the price stability objective.

Recent increase in inflation has been driven by supply side factors such as rise in food and import prices and supply constraints, increase in administered prices and demand developments due to the reopening. It is assessed that these effects are due to transitory factors. On the other hand, the decelerating impact of the monetary tightening on credit and domestic demand is being observed. The tightness in monetary stance has started to have a higher than envisaged contractionary effect on commercial loans. In addition, macroprudential policy framework has been strengthened to curb personal loan growth. The Committee evaluated the analyses to decompose the impact of demand factors that monetary policy can have an effect, core inflation developments and supply shocks. Accordingly it is judged that a revision in monetary policy stance is needed and the policy rate was decided to be reduced.

The CBRT will continue to use decisively all available instruments until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is achieved in pursuit of the primary objective of price stability. Stability in the general price level will foster macroeconomic stability and financial stability through the fall in country risk premium, continuation of the reversal in currency substitution and the upward trend in foreign exchange reserves, and durable decline in financing costs. This would create a viable foundation for investment, production and employment to continue growing in a healthy and sustainable way.

The Committee will continue to take its decisions in a transparent, predictable and data-driven framework.

The summary of the Monetary Policy Committee Meeting will be released within five working days.”


Before It’s News® is a community of individuals who report on what’s going on around them, from all around the world.

Anyone can join.
Anyone can contribute.
Anyone can become informed about their world.

"United We Stand" Click Here To Create Your Personal Citizen Journalist Account Today, Be Sure To Invite Your Friends.

Please Help Support BeforeitsNews by trying our Natural Health Products below!

Order by Phone at 888-809-8385 or online at M - F 9am to 5pm EST

Order by Phone at 888-388-7003 or online at M - F 9am to 5pm EST

Order by Phone at 888-388-7003 or online at M - F 9am to 5pm EST

Humic & Fulvic Trace Minerals Complex - Nature's most important supplement! Vivid Dreams again!

HNEX HydroNano EXtracellular Water - Improve immune system health and reduce inflammation

Ultimate Clinical Potency Curcumin - Natural pain relief, reduce inflammation and so much more.

MitoCopper - Bioavailable Copper destroys pathogens and gives you more energy. (See Blood Video)
Oxy Powder - Natural Colon Cleanser!  Cleans out toxic buildup with oxygen! 
Nascent Iodine - Promotes detoxification, mental focus and thyroid health.
Smart Meter Cover -  Reduces Smart Meter radiation by 96%!  (See Video)

Immusist Beverage Concentrate - Proprietary blend, formulated to reduce inflammation while hydrating and oxygenating the cells.

Report abuse


Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Load more ...




Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.