December 5, 2022

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Turkey cuts rates by 150 basis points, ending easing cycle

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An electronic board displays exchange rate information at a currency exchange office in Istanbul, Turkey, Monday, August 29, 2022.

Nicole Tung | Bloomberg | Getty Images

Turkey’s central bank cut interest rates by 150 basis points to 9% on Thursday, deciding to end its cycle of monetary easing, citing heightened inflationary risks.

The central bank has been under constant pressure from President Recep Tayyip Erdogan to cut interest rates further despite rising inflation, which hit 85.5% yoy in October as food and energy prices continued to rise.

“Given the mounting risks to global demand, the committee assessed that the current policy rate is appropriate and decided to end the cycle of interest rate cuts that started in August,” the central bank said in a statement.

Erdogan has continued to insist that raising interest rates in line with central banks around the world would hurt Turkey’s economy, an insistence that economists suspect has led to a significant depreciation of the lira currency and pushing inflation into the country has driven up.

“While the negative consequences of supply shortages in some sectors, particularly staple foods, have been mitigated by the strategic solutions facilitated by Türkiye, the upward trend in producer and consumer prices at the international level continues,” the central bank said.

“The impact of high global inflation on inflation expectations and international financial markets is being closely monitored. In addition, central banks in advanced economies are emphasizing that the rise in inflation may take longer than previously expected due to high energy prices, supply-demand imbalances and rigidities in labor markets,” she added.

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