Turkish Central Bank Cuts Benchmark Interest Rate Amid Pressure From the Country's President

11/18/2021 | 06:29am
Maria Martinez

By Maria Martinez

Turkey's central bank cut its benchmark interest rate Thursday despite the acceleration in the country's inflation rate.

The central bank cut its key rate by 100 basis points, to 15% from 16%. The benchmark rate was forecast to be cut to 15.13% by FactSet.

Expectations for the central bank to cut rates ramped up Wednesday after president Recep Tayyip Erdogan said he would continue to fight to bring interest rates down to stimulate economic growth.

Mr. Erdogan has repeatedly intervened at the central bank to install officials who side with his unorthodox economic stance. Last month, Mr. Erdogan dismissed central bank deputy governors Semih Tumen and Ugur Namik Kucuk, as well as Monetary Policy Committee member Abdullah Yavas.

"There is a growing risk that the central bank's continued obedience to pressure from President Erdogan for interest rate cuts results in sharp and disorderly falls in the currency over the coming days and weeks," Capital Economics senior emerging markets economist Jason Tuvey said.

Turkey's inflation rate accelerated on an annual basis in October, as the consumer price index rose 19.89% on year compared with 19.58% in September, the highest rate since January 2019, according to data from TurkStat. The Turkish inflation rate is far from the medium-term 5% target set by the bank.

"The inflation outlook far from justifies the Turkish central bank's current stance, let alone further easing," economists at UniCredit said.

This rate cut could cause inflation to rise even further and broader financial conditions to tighten, Mr. Tuvey from Capital Economics said.

Write to Maria Martinez at maria.martinez@wsj.com

(END) Dow Jones Newswires

11-18-21 0629ET

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