Turkey’s central bank has cut benchmark interest rates below the country’s present inflation rate, in a move that follows sustained pressure from the government of Recep Tayyip Erdogan, prime minister.
The 75 basis point cut in the weekly repo rate to 8.75 per cent, went further than expectations and despite an inflation rate that is almost double the central bank’s 5 per cent target
The move, which the bank said came in the wake of increased global liquidity, came barely 24 hours after Numan Kurtulmus, deputy chairman of Mr Erdogan’s ruling AK party, suggested a change in Turkey’s laws to rein in central bank influence, and two weeks after leading bank officials, including the governor’s chief of staff, were shifted from their posts.
Mr Erdogan, who is the overwhelming favourite in presidential elections scheduled for this August, has vigorously campaigned for lower interest rates and denounced what he calls the “interest rate lobby” – his term for domestic and international financiers he says want to keep rates high and slow Turkish growth down.
He described the bank’s previous 50 basis point cut, in May, as a “joke”.
The political context is becoming increasingly charged, with Mr Erdogan’s ruling AK party due to announced its presidential nomination – widely expected to be the prime minister himself – on July 1.