Turkey cuts interest rates to 8.25 percent
(Updates with Japanese Prime Minister's comments of financial aid)
Turkey’s central bank has cut interest rates by 50 basis points from 8.75 percent to 8.25 percent, Bloomberg said on Thursday.
It was the bank’s ninth consecutive interest rate cut in less than a year after measures to prop up the lira helped the currency recover from a recent all-time low against the dollar, but also drove away foreign investors, Bloomberg said.
The bank’s Monetary Policy Committee described its decision as a “measured cut,” according to a statement.
“Although consumer inflation might follow a slightly higher course in the short term due to seasonal and pandemic-related effects on food prices, demand-driven disinflationary effects will be more prevalent in the second half of the year,” the central bank said.
Bloomberg said that the defence of the lira – with state lenders flooding the market with dollars to prop the currency up in recent months - opened the way for lower borrowing: “a linchpin of the government’s strategy to keep cheap credit flowing to consumers and businesses as it tries to mitigate the economic fallout from the coronavirus outbreak”.
The latest cut pushed rates deeper below zero, when adjusted for inflation, to one of the lowest levels in the world, Bloomberg said.
The lira is now hovering around its strongest level in over a month, but is still down by around 12.4 percent since the beginning of the year.
Phoenix Kalen, a strategist at Societe Generale SA in London, told Bloomberg before the most recent cut that the “lira has been defying the odds in recent days”.
Kalen added that: “This marked resilience may be attributable to continued currency interventions via state banks, regulatory interventions that magnified the risk of speculative short lira positions,” and speculation that Turkey was close to securing a currency swap line.
On Wednesday, the Turkish central bank announced that it was tripling the limit of an existing swap deal with Qatar to $15 billion.
Turkey urgently needed a source of foreign exchange due to its efforts to prop up the lira, with gross central bank reserves down $17 billion since the beginning of the year to $89.2 billion.
Meanwhile, Japanese Prime Minister Shinzo Abe said on Thursday Japan would offer financial support to developing countries in an effort to help them control the spread of the coronavirus and the economic fall-out during his speech via videolink to commemorate the opening of a hospital in Istanbul.
Abe said such aid could include emergency loans.