UPDATE 1-Turkey forges on with 100-point rate cut despite lira meltdown

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(Adds statement from MPC, updates market reaction, adds graphic)

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ISTANBUL, Nov 18 (Businesshala) – Turkey’s central bank on Thursday slashed its policy rate by 100 basis points to 15% and signaled more easing despite inflation running near 20%, pushing the lira currency to an all-time low. level reached.

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The bank, seen as President Tayyip Erdogan’s call for stimulus despite risks, expanded on expectations of a easing cycle starting in September, when the one-week repo interest rate was lowered to less than 19%.

The lira fell against the dollar after the rate decision of 10.98, down 3% and matching a record low hit earlier in the day. It was priced at 10.85 at 1129 GMT.

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Tim Ash of Bluebay Asset Management said of the rate cut on Twitter, “Really insane move that puts the lira in real danger.”

A Businesshala poll last week expected the central bank to cut by 100 basis points, although some analysts thought the 9% lira would be a sell-off this week. The size of last month’s 200-point cut stunned the markets.

Analysts have called monetary easing premature and reckless because it leaves Turkey’s real yields sharply negative, and runs against the grain of a world in which central banks are raising rates to stave off global price hikes. .

The policy committee of the central bank said that the temporary factors driving inflation, including supply, will remain in place till the first half of next year.

“The committee will consider completing the limited room use implied by these factors in December,” when it holds its last policy meeting of the year, she said.

The credibility of the central bank has been damaged in recent years given Erdogan’s relentless criticism of interest rates and the bank’s rapid change in leadership over policy differences.

Erdogan promised on Wednesday to continue battling interest rates “until the end”, prompting a selloff of the currency, which had echoes of a full-blown crisis in 2018.

The 32% depreciation of the lira so far this year drives prices up through imports, further fueling inflation that has climbed steadily to 19.89% last month, the highest in nearly three years.

Inflation is four times the central bank’s official 5% target, with the currency depreciating as well as a sharp increase in the cost of living for Turks.

Last month, the central bank began stressing the need to address the current account deficit. It has recently focused more on the core “C” inflation measure, which removes energy, food and some other goods, and which eased to 16.82% in October.

Much of the lira decline this year has come since September, when a more liberal policy stance was adopted. This is the worst ever performance in emerging markets this year.

Additional reporting by Can Sezer, Tuvan Gumrukku and Ace Tokasabe; Editing by Jonathan Spicer and Toby Chopra

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