Turkish cenbank slashes rates 100 points despite lira crash

The lira has shed more than half its value this year in Turkey’s second currency crisis since 2018.

Turkey’s central bank slashed its key rate by 100 basis points to 14 per cent as expected on Thursday, and signalled a pause next month, extending President Tayyip Erdogan’s unorthodox policy even after the currency spiralled to all-time lows.

The bank said that over coming months it would monitor the effects of the easing cycle that began in September when the one-week repo interest rate was cut from 19 per cent.

The subsequent 500 basis-points of cuts set the stage for the historic lira crash that sent inflation above 21 per cent, prompting economists to widely criticise the policy as reckless given it leaves Turkey’s real yields sharply negative.

The lira dove to a new all-time low of 15.689 versus the dollar in response to the decision, and was at 15.39 at 1125 GMT. It has shed more than half its value this year in Turkey’s second currency crisis since 2018.

The central bank was expected to ease by 100 basis points according to a Reuters poll last week, though one analyst thought the lira depreciation would force it to hold.

The rate cut was “as expected, but still unbelievable,” said John Hardy, head of FX strategy at Saxo Bank.