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Turkey’s central bank to make rate decision

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Turkey’s central bank to make rate decision

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Photo: REUTERS/Murad Sezer/File Photo

The central bank of Turkey (CBRT) is set to release an interest rate decision today, and will likely maintain the current rate as inflationary pressures mount.

The CBRT has slashed its benchmark continuously since July 2019—cutting a total of 1,575 basis points—to bring its lending rates down from 24% to 8.25%. This has boosted inflation to a reported 12.6% last month, as the nation dips its toe into negative interest rate territory and contends with a widening current account deficit.

While a recent S&P report predicts a rate increase to counteract spiralling inflation, surveys conducted by Bloomberg and Reuters revealed a unanimous expectation of a rate hold this month. The state-run Anadolu news agency likewise forecasts a rate hold but leaves room for additional rate cuts before the end of the year, to a potential range of 6-8%.

It is highly unlikely that the CBRT will raise interest rates as President Recep Tayyip Erdogan favours lower rates to buttress the domestic economy, even firing the longtime CBRT chief last year for refusing to slash the benchmark. Expect negative rates for the remainder of the year, as inflation is set to overshoot the central bank’s target of 5% and exacerbate market instability throughout the country.

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