Turkish lira slides as Central Bank cuts policy rate

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The Central Bank has reduced the policy rate (one-week repo auction rate) from 19 percent to 18 percent.

The real interest rate was already negative as the monthly inflation rate in August was announced as 19.25 percent. It is now 1.25 points below the inflation rate.

After the decision was announced at 2 p.m., the US dollar's exchange rate against the Turkish lira rose rapidly from 8.65 to 8.8017, the all-time high.

The Central Bank also stated that its decision was based on the core inflation rate rather than the headline inflation rate. The core inflation rate was 16.75 percent in August.

"Recent increase in inflation has been driven by supply-side factors such as rise in food and import prices and supply constraints, increase in administered prices and growing demand due to the reopening," it said.

"On the other hand, the decelerating impact of the monetary tightening on credit and domestic demand is being observed.

"In addition, macro-prudential policy framework has been strengthened to curb personal loan growth. The Committee evaluated the analyses to decompose the impact of demand factors that monetary policy can have an effect, core inflation developments and supply shocks.

"Accordingly, it is judged that a revision in monetary policy stance is needed and the policy rate was decided to be reduced." (HA/VK)