TurkeyĂ˘â‚¬â„˘s central bank has defied warnings from the business world and opposition parties by slashing its main interest rate despite rising inflation and an ailing currency.
Bucking the global trend at a time when both developed economies and other emerging markets are adopting a hawkish stance, the bank lowered the cost of borrowing by a full 2 percentage points Ă˘â‚¬â€ť a far deeper cut than the markets expected.
The lira, which had already lost about 20 per cent of its value against the dollar this year prior to the announcement, fell a further 2 per cent on the news, hitting a fresh low of TL9.47 to the US dollar.
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Paul McNamara, a fund manager at asset manager GAM, said the decision to lower the one-week repo rate to 16 per cent was Ă˘â‚¬Ĺ“either brave or foolhardyĂ˘â‚¬Âť, adding: Ă˘â‚¬Ĺ“I strongly lean to the latter.Ă˘â‚¬Âť
ThursdayĂ˘â‚¬â„˘s move came a week after President Recep Tayyip Erdogan, a notorious opponent of high interest rates who has asserted greater control over the nominally independent central bank, fired three members of its monetary policy committee. They included the only person to oppose a decision last month to cut rates.
The Turkish president, whose view that high interest rates lead to inflation runs counter to established economic orthodoxy, has increasingly meddled in monetary policy as he consolidates his control over the Turkish state. He has pushed for rate cuts even at the cost of soaring inflation and turmoil in the financial markets. Ali Babacan, who served for years as ErdoganĂ˘â‚¬â„˘s economy tsar before launching his own party in 2020, said on Thursday that the central bank had cut Ă˘â‚¬Ĺ“under ordersĂ˘â‚¬Âť.
The bank has faced growing pressure from the countryĂ˘â‚¬â„˘s opposition, which has been buoyed by ErdoganĂ˘â‚¬â„˘s declining poll ratings, to act in line with its independent mandate.