Turkey’s central bank likely to continue interest rate cuts as economy stabilises

turkey central bank
Photo: Reuters/Umit Bektas/

Turkey’s Monetary Policy Committee meets today and is expected to announce an interest rate cut from the country’s central bank.

The central bank gradually lowered interest rates from 24% to 12% in 2019, reducing borrowing costs for businesses and individuals and quickly reversing an economic recession caused by a currency crisis in 2018.

After achieving 0.9% GDP growth in the third quarter of 2019, the Turkish government believes that economic growth will be as high at 5% in 2020.

Ankara’s public spending and interest rate cuts have rallied the economy in the short-term. However, some experts have expressed concern that the expansionary measures taken at the behest of President Recep Tayyip Erdogan, who relies on positive growth figures to legitimise his increasingly authoritarian rule, will undermine Turkey’s economy in the future. The unemployment rate remains stubbornly high at 13.3% and the ratio of public net debt stock to GDP increased from 8.7% in the second quarter of 2018 to 14.5% a year later, indicating that fundamental issues within the country’s economy are yet to be resolved.

Today’s expected interest rate cut will help push GDP growth to 3.5-5% in 2020 as Turkey’s economy continues its rapid recovery from the 2018 currency crisis. However, fundamental issues like private and public debt and youth unemployment risk undermining Erdogan’s domestic political legitimacy.

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