Turkish Central Bank shaves benchmark interest rate by 0.75 points

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The Turkish Central Bank has cut its benchmark rate to 8.75 from 9.5 percent amid mounting pressure form the prime minister for lower interest rates that would support growth.

The Bank said the Monetary Policy Committee decided to shave its one week repurchase rate, used by commercial banks for short-term funding, from 9.5 percent to 8.75 percent, but kept the rate corridor steady between 8 and 12 percent.

The Central Bank, which ramped up rates in January to defend the plunging Turkish Lira, cut them for the first time in a year last month despite stubborn inflation, weeks after Erdoğan called for such a move.

Erdoğan later said the bank’s 50 basis point cut in its one-week repo rate, the main rate at which it currently funds the market, had not been enough.

Speaking at a meeting on June 16, Governor Erdem Başçı had said the Bank could review interest rates as soon as this month if it is convinced that the outlook for inflation is improving significantly.

“A cautious, measured, gradual rate cut process is being priced in. We are observing it in long-term rates, as long as the confidence in the Central Bank reducing inflation continues, as long as it’s being observed in long-term rates, we will do it,” Başçı had stated.

He said that economic growth was on track and that Turkey’s current account deficit – its main economic weakness – would narrow “swiftly” this year as the economy keeps rebalancing.

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