The Turkish lira added to its 2022 losses after the central bank slashed interest rates as part of its efforts to fight price inflation. The currency has continued its weakness from a year ago, driven by skyrocketing inflation, a currency crisis, and national upheaval. Will the lira turn things around?
At its November policy meeting, the central bank cut the benchmark interest rate by 150 basis points to 9%, down from 10.5%. This is what markets had anticipated since President Recep Tayyip Erdogan warned that interest rates needed to fall further.
The overnight lending rate was slashed to 10.5%, while the overnight borrowing rate was reduced to 7.5%.
But the positive development in Ankara is that policymakers agreed to end its easing cycle that began in August.
“Considering the increasing risks regarding global demand, the Committee evaluated that the current policy rate is adequate and decided to end the rate cut cycle that started in August,” the central bank said in a statement. “While the negative consequences of supply constraints in some sectors, particularly basic food, have been alleviated by the strategic solutions facilitated by Türkiye, the upward trend in producer and consumer prices continues on an international scale.”
The central bank also noted that it would be performing a review of its policy framework to bolster the lira and ensure it can employ “all available instruments” to bring inflation down to its “medium-term 5 percent target” rate.
“Stability in the general price level will foster macroeconomic stability and financial stability through the fall in country risk premium, continuation of the reversal in currency substitution and the upward trend in foreign exchange reserves, and durable decline in financing costs,” the CBRT said.
Meanwhile, on the economic data front, the capacity utilization rate fell to 75.9% in November, down from 76.9%. Business confidence eased from 100.3 to 97.9 in November, while consumer confidence edged up to 76.6. Foreign exchange reserves topped $80 billion for the week ending November 18 for the first time since December 2021.
The USD/TRY currency pair rose 0.06% to 18.6294, from an opening of 18.6176, at 18:11 GMT during the quiet Thanksgiving holiday trading session Thursday. The EUR/TRY climbed 0.17% to 19.3848, from an opening of 19.3515.