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Turkey central bank cuts key rate after Erdogan pleas

Turkish president Recep Tayyip Erdogan addresses the 76th Session of the UN General Assembly on September 21, 2021 in New York. (Photo by EDUARDO MUNOZ / POOL / AFP)

ANKARA: Turkey's central bank cut its main interest rate on Thursday after months of pressure from President Recep Tayyip Erdogan for it to lower rates.

The Turkish lira lost over 1.4 percent in value against the US dollar after the bank announced it was cutting the one-week repo rate to 18 percent from 19 percent.

The move comes despite high inflation, reaching 19.25 percent in August, and appears to show just how much pressure the bank is under Erdogan's rule.

The lira has lost around 15 percent of its value against the greenback since the start of 2021.

The Bloomberg consensus had been for the rate to be kept stable although one economist predicted a cut of 0.5 percent.

Erdogan has previously described rates as the "mother and father of all evil" and last month said they needed to fall for lower inflation to follow, going against economic orthodoxy.

Earlier this month, central bank governor Sahap Kavcioglu told investors that consumer prices were expected to drop in the months ahead and the bank would now look at "core" inflation -- which is below 17 percent after excluding volatile items such as food and fuel -- for future decisions.

Kavcioglu is the fourth governor since 2019 after Erdogan sacked three central bankers because they were either raising borrowing costs or not lowering them rapidly enough.

This is the first cut under Kavcioglu after wild but unconfirmed speculation in Ankara this month that he faced a similar fate if he did not reduce the rate.

Economists hit out at the "risky" decision.

"Idiotic move. Hugely risky. Erdogan is gambling with the lira now," Timothy Ash, an analyst at BlueBay Asset Management in London, said on Twitter.

 

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