Turkey’s central bank is slated to maintain its policy rate at 13 percent next week, according to a Reuters poll published on Thursday, following a surprise rate cut by the bank last month amid runaway inflation in the country.
Turkey’s inflation has accelerated, rising from an already high year-on-year rate of between 19- 21 percent in autumn 2021 to more than 80 percent last month as part of an easing cycle in line with President Tayyip Erdoğan’s unorthodox policy.
Turkey’s central bank in August lowered its interest rate by a one percentage-point drop, citing the “weakening effects of geopolitical risks,” when explaining its decision. Contrary to well-established economic principles, Erdoğan believes that reducing interest rates can slow inflation, rather than fuel it.
A total of 11 of 14 economist that participated in the Reuters poll for September’s rate decision predicted that the central bank will keep the one-week repo rate at 13 percent, while one predicted a 50-basis-point cut to 12.50 percent.
Two forecasted a 100-basis-point cut to 12 percent, the poll showed.
According to Liam Peach, senior emerging markets economist at Capital Economics, the central bank may use softening growth as an excuse to cut interest rates further this month, after data published on Tuesday showed industrial production declined month-on-month in July.
Citing the central bank statement that the policy rate is “adequate under the current outlook” following last month’s cut, bankers told Reuters that the statement likely indicated that bank would abstain from cutting rates further for now.
The value of the Turkish lira against the U.S. dollar has also plummeted in recent months amid the Turkish president’s refusal to raise rates. In November of last year, $1 was equal to roughly 10 Turkish liras and the currency has now surpassed 18 to the dollar on the back of the last month’s central bank decision. The decrease is further feeding inflation, which climbed to a fresh 24-year high of 80.21 percent in August.
Ahval