Turkey cuts interest rates again as country battles inflation

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Turkey’s central bank once again surprised the markets by deciding on Thursday to lower its key rate, despite inflation in the country exceeding 80%.

The country’s monetary policymakers opted for a 100 basis point cut, taking the key one-week repo rate from 13% to 12%. In August, Turkey’s inflation rate was recorded at 80.2%, accelerating for the 15th consecutive month and the highest level in 24 years.

A statement from the central bank said it “assessed the updated level of policy as adequate for the current outlook,” according to Reuters.

The policy stance has long stunned investors and economists, who say the refusal to tighten policy is the result of political pressure from Turkish President Recep Tayyip Erdogan, who has long opposed interest rates and went against economic orthodoxy by insisting that lower rates are the way to lower inflation.

The months-long campaign to continually lower rates as Turkey’s trade and current account deficit swells and its foreign exchange reserves dwindle has instead sent the Turkish currency, the lira, into a precipitous, multi-year slide. The lira has lost more than 27% of its value to the dollar since the start of the year, and 80% over the past five years. Following the bank’s rate decision announcement, the currency lost a quarter of a percentage point, trading at an all-time high of 18.376 to the dollar.

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