The Central Bank of the Republic of Turkey delivered a bigger-than-expected rate cut today. Market expected CBRT to lower the 1-week repo rate to 11% from 12%. However, the Bank decreased the rate to 10.50% instead.
Central bank signaled that it will take the same step in the next meeting to end the rate-cutting cycle. The decision added to the 850bps in unorthodox rate cuts since September of 2022 despite a plunging lira, soaring consumer prices, and an unbalanced current account. Inflation crossed 83% in September, the highest since 1998, largely due to surging costs of importing energy with an increasingly weak currency.
Interest rates and inflation in Turkey. As you can see, maintaining extreme rates in 2019 reduced inflation, while cuts in 2021 accelerated price pressures. Source: Bloomberg
USDTRY pair slumps after CBRT delivered a bigger-than-expected rate cut. Source: xStation5
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