Inflation is close to 80%, Turkey is still determined to lower interest rates

DNHN - The Turkish lira local currency fell 0.9% against the dollar, trading at more than 18.1 lire to 1 USD after the announcement of the CBRT's interest rate cut - a record low.

Turkey's policy interest rate was cut by 100 basis points to 13%, in stark contrast to the moves of central banks around the world. The lira fell 0.9% against the USD, fluctuating at 18.1 lire to 1 greenback after the above information.

Following this news, the Turkish lira continued to fall 0.9% against the USD, currently trading at more than 18.1 lire per dollar – near a record low. This time 5 years ago, one dollar was only worth 3.5 lire.

 “This is a silly move,” said Timothy Ash, emerging markets strategist at BlueBay Asset Management. “It's crazy how 80% inflation, still going up, the central bank is still falling profit up to 100 basis points”.

The Turkish government has just made diplomatic moves with many oil countries in the Gulf, mending the once very strained relationship between the two sides. Turkey's goal is to attract the necessary investments from the Gulf countries. At the same time, the country is also open to trading with Russia despite sanctions from the West.

Analysts say that Turkey will face more troubles in the future. Capital Economics warned yesterday's move could spark another currency crisis here.

PV