Turkey cuts rates, de­fies in­fla­tion

The Myanmar Times - - International Business -

TURKEY’S cen­tral bank has cut its main in­ter­est rate by 25 ba­sis points, de­fy­ing a sharp jump in in­fla­tion fol­low­ing the failed July 15 coup.

The cen­tral bank said the overnight lend­ing rate was trimmed to 8.5 per­cent from 8.75pc and its one-week re­pur­chas­ing rate re­mained at 7.5pc.

The overnight bor­row­ing rate also re­mained in­tact at 7.25pc.

The cut was the fifth-straight trim­ming by the cen­tral bank un­der new gov­er­nor Mu­rat Cetinkaya amid strong pres­sure from Pres­i­dent Re­cep Tayyip Er­do­gan for a more dovish mon­e­tary pol­icy to stim­u­late growth.

How­ever, in­fla­tion had ticked up to 8.79pc in July com­pared with 7.64pc in June, with the ef­fects of the coup in par­tic­u­lar putting pres­sure on food prices.

But jus­ti­fy­ing its de­ci­sion, the bank said, “Pro­cessed food prices, which have shown marked in­creases, are pro­jected to dis­play a down­ward cor­rec­tion in the short term. The core in­fla­tion trend is ex­pected to im­prove grad­u­ally.”

De­spite a de­cline in tourism rev­enues due to the coup and a slew of mil­i­tant at­tacks, it said that ac­tiv­ity showed a “mod­er­ate and sta­ble course of growth”.

While in­fla­tion re­mains high, the bank has also been glad­dened to see a rally of the Turk­ish lira which had crashed against the dol­lar in the wake of the coup but has ral­lied over 4 per­cent in the last month.

But some econ­o­mists ex­pressed con­cern about the cut, say­ing that the bank needed to pay far greater at­ten­tion to in­fla­tion.

The cut “pro­vides fur­ther ev­i­dence that the coun­cil is pay­ing scant re­gard to its in­fla­tion tar­get”, said William Jack­son of Cap­i­tal Eco­nomics.

He said the bank’s “re­lent­lessly dovish stance” sug­gests fur­ther rate cuts to­talling 50 ba­sis cuts were in the off­ing be­fore the end of the year.

“The coun­cil ap­pears to be un­der­es­ti­mat­ing the risks fac­ing the Turk­ish econ­omy,” he added, pro­ject­ing in­fla­tion to shoot up to 10pc by the end of the year de­spite the bank’s op­ti­mism that it would fall. –

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