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Turkey's Central Bank Slashes Interest Rate 10% in 3 Months

Turkey's Central Bank Slashes Interest Rate 10% in 3 Months

Friday, 25 October, 2019 - 11:15
A logo of Turkey's Central Bank (TCMB) is pictured at the entrance of the bank's headquarters in Ankara, Turkey April 19, 2015. (REUTERS Photo)

For the third time in three months, Turkey's Central Bank has lowered its benchmark one-week repo rate to 14 percent from 24 percent in July.

The bank also cut its policy rate by 250 basis points.

On July 25, the bank lowered its benchmark one-week repo rate from 24 percent to 19.75 percent. Then on Sep. 12, it lowered it 3.25 percent to 16.50 percent before the third reduction that reached 14 percent.

The consecutive slash of the interest rate was in response to demands made by Turkish President Recep Tayyip Erdogan, who has declared himself as the “enemy of interest” and who believes that increasing interest rates leads to higher inflation.

In June, Erdogan appointed Central Bank Governor Murat Uysal to replace Murat Cetinkaya who had rejected the government's repeated demands for rate cuts.

The bank was compelled to raise the interest rate last Sep. after inflation exceeded 25 percent, on the backdrop of the Turkish lira crisis, dropping in August to 7.24 against the dollar due to the tension with the US and other domestic factors.

Turkish government dollar bonds also surged to their most in nine months this week after US President Donald Trump announced a lifting of sanctions on Ankara.

The 2045 issue jumped 2.4 cents to 94.1 cents in the dollar, its biggest daily gain since mid-January.

After Trump’s announcement, the Turkish lira firmed some 1.3 percent. It reached its highest levels since Oct. 8 trading at 5.7 against the US currency.

The US Treasury said the sanctions were lifted on the ministries of defense and energy as well as three Turkish ministers following Ankara’s decision to end its offensive in northeast Syria.

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