Türkiye’s Central Bank Cuts Interest Rate

A logo of Türkiye’s Central Bank (TCMB) is pictured at the entrance of the bank's headquarters in Ankara, Turkey April 19, 2015. REUTERS/Umit Bektas/File Photo
A logo of Türkiye’s Central Bank (TCMB) is pictured at the entrance of the bank's headquarters in Ankara, Turkey April 19, 2015. REUTERS/Umit Bektas/File Photo
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Türkiye’s Central Bank Cuts Interest Rate

A logo of Türkiye’s Central Bank (TCMB) is pictured at the entrance of the bank's headquarters in Ankara, Turkey April 19, 2015. REUTERS/Umit Bektas/File Photo
A logo of Türkiye’s Central Bank (TCMB) is pictured at the entrance of the bank's headquarters in Ankara, Turkey April 19, 2015. REUTERS/Umit Bektas/File Photo

Türkiye’s Central Bank (TCMB) decided on Thursday to reduce the policy rate (one-week repo auction rate) from 9 percent to 8.5 percent, after keeping it unchanged for two consecutive months.

In November last year, the bank’s Monetary Policy Committee (MPC) had kept the key interest rate unchanged as the country’s President Recep Tayyip Erdogan insisted on keeping borrowing costs below 10 percent, arguing that high interest rates cause inflation.

The MPC move on Thursday is the lowest in three years. It comes to weather the fallout from the devastating earthquakes that killed more than 43,000 people in the country's south on Feb 6.

“It has become even more important to keep financial conditions supportive to preserve the growth momentum in industrial production and the positive trend in employment after the earthquake,” the central bank said in a press release following a meeting of its MPC, headed by Governor Sahap Kavcioglu.

It added that although recently released data point to a stronger economic activity than anticipated, recession concerns in developed economies as a result of ongoing geopolitical risks and interest rate hikes continue.

“While the negative consequences of supply constraints in some sectors, particularly basic food, have been alleviated by the strategic solutions facilitated by Türkiye, the high level in producer and consumer inflation continues on an international scale,” the bank’s MPC press release stated.

It added that the effects of high global inflation on inflation expectations and international financial markets are closely monitored.

According to the latest data from the Turkish Statistical Institute (TurkStat), Türkiye's annual consumer inflation fell to 57.68% in January, an 11-month low, compared to 64.27% in December and 84.39 % in November.

It had reached 85.51 percent in October 2022, the highest inflation rate recorded during the provided time period.

Financial markets had been expecting a rate cut even before the earthquake that hit 10 Turkish provinces south and east of the country.

And with reconstruction costs estimated at billions of dollars, the disaster has further shocked Türkiye’s economy which suffered from an inflation exceeding 80% for the first time since September 1998, threatening growth to slowdown by 1 to 2.5% this year.

On Thursday, TCMB said that before the earthquakes, leading indicators have been pointing to a stronger domestic demand compared to foreign demand as well as an increase in the growth trend in the first quarter of 2023.

It added that while the earthquake is expected to affect economic activity in the near term, it is anticipated that it will not have a permanent impact on performance of the Turkish economy in the medium term.

The bank said that while the share of sustainable components of economic growth increases, the stronger than expected contribution of tourism revenues to the current account balance continues throughout the year.

On the other hand, domestic consumption demand, high level of energy prices and the weak economic activity in main trade partners keep the risks on current account balance alive, it added.

“The CBRT will continue to use all available instruments decisively until strong indicators point to a permanent fall in inflation and the medium-term 5 percent target is achieved in pursuit of the primary objective of price stability,” the bank’s press release affirmed.



Gold Hits Four-week Peak on Safe-haven Demand

A view shows ingots of 99.99 percent pure gold in a workroom during production at Krastsvetmet precious metals plant in the Siberian city of Krasnoyarsk, Russia, May 23, 2024. REUTERS/Alexander Manzyuk
A view shows ingots of 99.99 percent pure gold in a workroom during production at Krastsvetmet precious metals plant in the Siberian city of Krasnoyarsk, Russia, May 23, 2024. REUTERS/Alexander Manzyuk
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Gold Hits Four-week Peak on Safe-haven Demand

A view shows ingots of 99.99 percent pure gold in a workroom during production at Krastsvetmet precious metals plant in the Siberian city of Krasnoyarsk, Russia, May 23, 2024. REUTERS/Alexander Manzyuk
A view shows ingots of 99.99 percent pure gold in a workroom during production at Krastsvetmet precious metals plant in the Siberian city of Krasnoyarsk, Russia, May 23, 2024. REUTERS/Alexander Manzyuk

Gold prices rose to a near four-week high on Thursday, supported by safe-haven demand, while investors weighed how US President-elect Donald Trump's policies would impact the economy and inflation.

Spot gold inched up 0.4% to $2,672.18 per ounce, as of 0918 a.m. ET (1418 GMT). US gold futures rose 0.7% to $2,691.80.

"Safe-haven demand is modestly supporting gold, offsetting downside pressure coming from a stronger dollar and higher rates," UBS analyst Giovanni Staunovo said.

The dollar index hovered near a one-week high, making gold less appealing for holders of other currencies, while the benchmark 10-year Treasury yield stayed near eight-month peaks, Reuters reported.

"Market uncertainty is likely to persist with the upcoming inauguration of Donald Trump as the next US president," Staunovo said.

Trump is considering declaring a national economic emergency to provide legal justification for a series of universal tariffs on allies and adversaries, CNN reported on Wednesday, citing sources familiar with the matter.

Trump will take office on Jan. 20 and his proposed tariffs could potentially ignite trade wars and inflation. In such a scenario, gold, considered a hedge against inflation, is likely to perform well.

Investors' focus now shifts to Friday's US nonfarm payrolls due at 08:30 a.m. ET for further clarity on the Federal Reserve's interest rate path.

Non-farm payrolls likely rose by 160,000 jobs in December after surging by 227,000 in November, a Reuters survey showed.

Gold hit a near four-week high on Wednesday after a weaker-than-expected US private employment report hinted that the Fed may be less cautious about easing rates this year.

However, minutes of the Fed's December policy meeting showed officials' concern that Trump's proposed tariffs and immigration policies may prolong the fight against rising prices.

High rates reduce the non-yielding asset's appeal.

The World Gold Council on Wednesday said physically-backed gold exchange-traded funds registered their first inflow in four years.

Spot silver rose 0.7% to $30.32 per ounce, platinum fell 0.8% to $948.55 and palladium shed 1.4% to $915.75.