The Central Bank of the Republic of Turkey (CBRT) unexpectedly cut its benchmark policy interest rate on Thursday amid heated inflation, which pushed the Lira to an all-time low. CBRT’s monetary policy committee slashed its base rate by one percentage point to 18%, defying economists’ prediction of no change. Following the announcement, the Lira tumbled over 1.5% to a record low of 8.80 against the US Dollar.
CBRT governor Sahap Kavcioglu, who assumed office in March, raised rates last month when inflation hit 19.25%. However, he was under pressure from President Recep Tayyip Erdogan to lower borrowing costs. Both Erdogan and Kavcioglu believe in an unorthodox theory that high interest rates fuel inflation. Analysts said the latest decision is a “crazy and ridiculous” move. However, the central bank believed that the rise in inflation was due to “transitory factors.”
