Turkey central bank reduces main interest rate to 24 percent

Turkey’s central bank lowered the interest rate it charges banks for borrowing by 150 basis points to 24 percent, reversing monetary tightening announced earlier this month.

The central bank also cut the interest rate on swaps to 24 percent from 25.5 percent, according to decisions made on Tuesday.

Turkey’s central bank announced less than two weeks ago that it ceased providing banks with liquidity at its benchmark rate of 24 percent. Some investors in Turkey had been calling on policymakers to raise interest rates to stem losses for the lira, which have reached almost 13 percent this year after a decline of 28 percent in 2018.

The decisions by the bank on Tuesday followed a ruling by the banking watchdog late on Monday requesting that banks delay by one day any dollar buying by retail investors that exceeded $100,000. The move was seen an attempt to stem recent losses for the lira.

“They need to get back to plain vanilla monetary policy, but its always a case of smoke and mirrors, and trying to be just too clever,” Tim Ash, senior merging markets strategist at Blue Bay Asset Management, said in e-mailed comments.

“And the track record over recent years is that this strategy dismally fails and they just end up with egg, or perhaps milk shake on their faces,” he said.

Some analysts put the central bank’s unorthodox policies down to an attempt to meet the expectations of President Recep Tayyip Erdogan, who says higher interest rates cause inflation and that banks should do more to help economic growth.

The lira dropped 0.7 percent to 6.06 per dollar at 12:15 p.m. in Istanbul.

Turkey entered an economic recession in the second half of last year. Consumer price inflation stands at almost 20 percent, the highest level in major emerging markets after crisis-hit Argentina.