The Turkish Central Bank surprised the markets, today, Thursday (August 18, 2022), and reduced the main interest rate by 100 basis points in one go, to reach 13%.
Today, the Monetary Policy Committee led by Governor Sahab Kavcioglu cut the benchmark interest rate to 13%, after keeping it at 14% for the past seven months.
Immediately after the decision was issued, the Turkish currency fell by about 1% against the dollar, before paring some of the losses.
This is the first time that the Turkish Central Bank has moved interest rates since the beginning of this year, despite the acceleration of inflation rates, which are close to 80%, the highest in nearly 24 years.
In a statement, the Monetary Policy Committee noted that “it is important that financial conditions remain supportive to maintain the growth momentum in industrial production and the positive trend of employment during a period of heightened uncertainty regarding global growth, in addition to escalating geopolitical risks.”
The interest cut in Turkey comes in the opposite direction to the moves of most major central banks, which raise interest rates at high rates to curb inflation.
President Recep Tayyip Erdogan believes that high interest rates increase inflation, and the sudden resumption of monetary stimulus, less than a year before the presidential elections, demonstrates the authorities' determination to follow through on Erdogan's June promise to continue lowering interest rates.
The decision comes 3 weeks after the Central Bank revised its inflation expectations for this year by increasing it by 18 percentage points.