Turkey’s central bankers likely to slash rates again
The Turkish Central Bank (CBRT) is expected to further decrease interest rates this week from 8.75% to 8%.
The government has floated the possibility of further reductions given that the Turkish lira is currently at its record low—trading 7.269 lira per US dollar—and the CBRT’s preferred policy mix indicates room for further cuts.
Turkey has reduced its policy interest rate to support growth in recent months. Fiscal measures intended to stabilise markets have included a $9 billion package to fund the banking system via 90-day repo auctions. The treasury and finance minister has set an ambitious goal of combined lira strength, controlled inflation and a current account surplus. Experts claim this “impossible trilogy” is inconsistent with Turkey’s economic reality, as inflation currently stands at 10.9% and lending rates have been repeatedly slashed.
Turkey’s economy had already grappled with low investment, rampant unemployment and high external debt prior to the COVID-19 outbreak. With additional moves to be expected given the extent of pandemic’s damage, market watchers will track lira performance, which will likely determine the variety and magnitude of upcoming measures. Rates could fall as low as 7.4% by the end of 2020, which will likely boost inflation and constrain bank deposits.
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