Turkish central bank says rate-cutting series largely complete

Turkish central bank governor Şahap Kavcıoğlu said the central bank has largely completed a series of interest rate cuts that saw borrowing costs fall to 15 percent from 19 percent over the past three months.

Room for further reductions is limited, Kavcıoğlu told local investors during a video conference call on Thursday, according to the Dünya newspaper.

Turkey’s central bank has shocked investors by cutting interest rates even as consumer price inflation approached 20 percent. The lira has slumped to successive record lows against the dollar, hitting 13.96 per dollar on Wednesday, forcing the bank to intervene in the currency markets.

Kavcıoğlu said the cumulative effects of the central bank’s current monetary policy stance would be observed in the first half of 2022. Expectations for investment and employment among Turkish firms were higher than in previous years and improvements in the current account deficit were becoming more pronounced, he said.

The central bank could intervene in the currency markets to deal with high volatility in exchange rates, Kavcıoğlu said, adding that there were “unhealthy price formations” occurring.

Turkish lira deposits in banks are continuing to grow and there has been a limited contraction in foreign currency deposits, he said. Real returns from lira deposits will maintain high levels as the inflation rate falls, he added. Inflation in Turkey accelerated to 19.9 percent in October.

The lira was trading down 1.5 percent at 13.46 per dollar at 12:47 p.m. local time on Thursday.

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