The Turkish lira stabilized against the dollar on Friday, after approaching record lows in the previous session, as the Turkish Central Bank shocked markets by cutting its interest rate to 13 percent.
By 0438 GMT, the currency was flat at 18.1, almost unchanged from Thursday’s close when it briefly reached 18.15, its weakest since Dec. 20, after the surprise rate cut.
Turkey’s central bank cut the interest rate by 100 basis points, saying it needs to continue to drive economic growth despite inflation rising to nearly 80 percent and a global trend among other central banks to tighten policies. This is the first time the Turkish central bank has moved rates since, At the beginning of this year, it remained stable at 14 percent over the past seven months, despite the acceleration of inflation rates to its highest level in nearly 24 years.
Very loose monetary policies and high food and energy costs led to an increase in inflation rates in Turkey and a severe weakness in the currency, which fell this year by about 26 percent, after it fell 44 percent last year following unconventional interest rate cuts to become one of the worst-performing currencies in the markets. Emerging.
The interesting cut in Turkey yesterday comes in the opposite direction to the moves of most major central banks that raise interest rates at high rates in order to curb inflation. Contrary to classical economic theories, Turkish President Recep Tayyip Erdogan believes that high-interest rates increase inflation.