Turkish Central Bank Unexpectedly Cuts Benchmark Interest Rate

By Maria Martinez

Turkey's central bank cut its benchmark interest rate on Thursday, when it had been expected to keep the rate steady as it had done in the five previous months.

The central bank cut its key rate to 18% from 19%. The benchmark rate was forecast unchanged at 19% by FactSet.

Despite the rate cut, the central bank shared an optimistic outlook for the economy.

"Leading indicators show that domestic economic activity remains strong in the third quarter, with the help of robust external demand," the bank said.

However, the bank noted that tightness in its monetary stance started to have a higher than envisaged contractionary effect on commercial loans.

"The Committee evaluated the analyses to decompose the impact of demand factors that monetary policy can have an effect [on], core inflation developments and supply shocks. Accordingly it is judged that a revision in monetary policy stance is needed and the policy rate was decided to be reduced."

Turkey's inflation rate accelerated on an annual basis in August, as the consumer price index rose 19.25% on year in August compared with 18.95% in July.

Turkey's central bank said the recent increase in inflation has been driven by supply side factors such as a rise in food and import prices and supply constraints, as well as increasing demand following the easing of restrictions.

The central bank said it will continue to use all available instruments until strong indicators point to a permanent fall in inflation and the medium-term 5% target is achieved in pursuit of the primary objective of price stability.

Write to Maria Martinez at [e-mail]

(END) Dow Jones Newswires

09-23-21 0737ET