Live Updates: Turkey surprises with 1 percentage point rate cut even as inflation soars

Turkey surprised markets with a 100 basis point cut in interest rates, even amid nearly 80% inflation, as the central bank further eases policy to boost growth ahead of the general election next year.

The bank was expected to hold the rate at 14%, which has already pushed Turkish yields into deep negative territory, according to a survey by broadcaster Bloomberg HT. Instead, policymakers lowered the rate to 13%, saying they were concerned about the possibility of slowing economic growth.

“Leading indicators for the third quarter point to some loss of momentum in economic activity,” the bank said in a statement Thursday. “It is important that financial conditions remain favorable to preserve the momentum of industrial production growth and the positive employment trend in a period of growing uncertainties regarding global growth as well as escalating geopolitical risk.”

The lira fell about 1% to 18.14 against the US dollar, the weakest level on an intraday basis since a severe fall late last year.

The currency has fallen more than 25% in 2022 as soaring inflation and deep concerns over the central bank’s unorthodox monetary policy prompted foreign investors to flee the market.

Turkey has bucked the trend of other central banks raising borrowing costs to contain global inflation.

Şahap Kavacıoğlu, the central bank governor, supports President Recep Tayyip Erdoğan’s unusual economic theory that high interest rates cause inflation, while mainstream economists take the opposite view.

Kavacıoğlu, who took over as bank chief last year, began easing monetary policy in September, cutting rates by 19%. This triggered Turkey’s highest inflation in a quarter century.