Turkey’s central bank is expected to reduce interest rates for the second-straight month on Thursday even after the lira dropped to successive record lows against major currencies and inflation accelerated to almost 20 percent.
The bank’s Monetary Policy Committee (MPC) may cut rates by 100 basis points, or 1 percentage point, to 17 percent, mirroring a reduction in September, according to polls of economists held by Reuters and Bloomberg.
Turkey’s central bank has lowered borrowing costs even after inflation accelerated to 19.58 percent last month, the highest level in major emerging markets aside from crisis-hit Argentina. The lira slid to a record low of 9.38 per dollar on Tuesday, extending losses this year to more than 20 percent.
All 26 economists surveyed by Bloomberg expect governor Şahap Kavcıoğlu to cut rates, with the majority expecting a 100-basis point reduction to 17 percent. In a Reuters poll, 20 economists were evenly split between a cut of 50 and 100 basis points. One predicted no change.
The central bank meeting comes a week after President Recep Tayyip Erdoğan, a self-declared enemy of interest rates, sacked three of the seven members of the MPC. Erdoğan hired Kavcıoğlu, who also sits on the MPC, in March to replace Naci Ağbal, a hawkish former finance minister who angered him by raising rates sharply during his four-month tenure.
The lira was trading down 0.7 percent at 9.27 per dollar on Thursday morning. The central bank is due to publish its decision at 2 p.m. local time.
On Wednesday, Fitch Ratings said that weak monetary policy credibility, Turkish lira weakness and inflationary pressures was leading to a highly volatile operating environment for local banks. Fitch said year-end inflation in Turkey could end up higher than its 17.2 percent forecast.
Ahval