Despite increasing inflation, the Monetary Policy Committee (MPC) of Central Bank of the Republic of Turkey has reduced the policy rate (one-week repo auction rate) from 15 per cent to 14 per cent. As a result of the cut in borrowing costs for the fourth consecutive month, lira fell to a record low and is currently trading at 16.19 per 1 US dollar.

Immediately after the decision was announced by the central bank, lira declined by over 5 per cent against the dollar; thus, falling by around 45 per cent since September this year.

The central bank’s decision is in sync with President Recep Tayyip Erdogan’s belief that lower interest rates curb inflation, and will boost investment, employment, and exports from the country.

Despite increasing inflation, the Monetary Policy Committee (MPC) of Central Bank of the Republic of Turkey has reduced the policy rate (one-week repo auction rate) from 15 per cent to 14 per cent. As a result of the cut in borrowing costs for the fourth consecutive month, lira fell to a record low and is currently trading at 16.19 per 1 US dollar.

“Central banks in advanced economies assess that the rise in inflation on the back of rising energy prices and imbalances between supply and demand may last longer than previously anticipated. Accordingly, while monetary policy communication of central banks in advanced economies varies with their diverse outlook for economic activity, labour market and inflation expectations, they continue their supportive monetary stances and asset purchase programmes,” the Turkish central bank said in its statement on reducing bank rate.

Experts, however, expect that the decision is a step forward towards making lira to see its largest annual deprecation since 2001.

To lessen the depreciation of the lira, over the last fortnight, the central bank intervened four times by selling dollars in the market.

Last month, inflation in Turkey zoomed past 21 per cent, which is about four times more than the official target.

Meanwhile, in an effort to balance the impact of rising prices of everyday items, President Erdogan has announced a 50 per cent increase in the country’s minimum wage, which now stands at 4,250 lira ($262) per month.

Fibre2Fashion News Desk (RKS)