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.
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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
