February 23, 2024

Despite Inflation Rate Being Near 80%, Turkey Shocks Markets with Rate Cut

The central bank of Turkey has just made an announcement in regards to the benchmark policy rate. The central bank has announced that it has cut the policy rate benchmark. The central bank has done it despite the inflation rate is very high in Turkey.

Central Bank of Turkey Cuts Benchmark Policy Rate

According to the latest economic data, the inflation rate in Turkey is almost 80%. This means that if the central bank of Turkey makes any decision, it would be to bring it under control.

Still, the central bank of Turkey has made an announcement that it has reduced the benchmark policy rate. This is a huge shocker for economists as well as investors from all over the world.

Most importantly, it is an alarming situation for the entire forex investment community. It puts the future of the Turkish lira in great danger.

This is because the central bank of Turkey has gone with a completely unimaginable approach in order to deal with the inflation situation.

Turkish Lira’s Current Versus the Dollar

Just when the announcement was made by the central bank of Turkey, the situation of the Turkish lira got worse against the greenback.

The data from the forex market shows that the value of the Turkish lira has dipped 0.9% ever since the Turkish central bank made the announcement.

At the time of writing, the trading value of the Turkish lira versus the US dollar is over 18.1. It is currently the record low price that the Turkish lira has hit so far.

Reduction in the Policy Rate

For several months, the policy rate for Turkey had been kept at 14% by the central bank of Turkey.

However, the central bank has reduced the policy rate, bringing it down to 13%. According to the economists, this is completely opposite to what the central banks of other countries are doing at present.

Even countries like the United States which recently reported a significant dip in the inflation rate have decided to keep their interest rates at an aggressive level.

The United States Feds have taken the step to ensure they are able to bring the inflation rates down much faster than expected.

Criticism by Timothy Ash

A senior emerging markets strategist, Timothy Ash was among the top analysts to criticize the recent decision made by the Turkish central bank.

He has criticized that it is yet another idiotic move made by the central bank of Turkey. Timothy Ash is currently a market strategist at BlueBay Asset Management.

With the latest move, it is expected that the value of the Turkish lira may hit even lower prices compared to the USD.

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