Turkey surprised the market with an interest rate cut by a full percentage point on Thursday despite consumer prices in the country sitting near 80%. The key policy rate stayed at 14% for the last seven months.
The Turkish lira dropped 0.9% against the greenback at more than 18.1 per dollar after the cut and as much as 1.2% to 18.15 per dollar. The currency is trading around 18.07 to a dollar as of the morning session of Asian market on August 19, 2022.
The move by the Turkish government shocked the market as central banks around the world are ready to jump on a rate hike to ease the rising inflation rate in their countries.
According to the statement by the Turkish central bank on Thursday, the rate cut was due to expectations for the “disinflation process to start” while there are signals of a “loss of momentum in economic activity.”
Timothy Ash, a senior emerging markets strategist at BlueBay Asset Management, branded the move by the Turkish government as insane.
