The central bank of Turkey on December 16 lowered its key interest rate for the fourth month in a row amid a record fall in the national currency.
The rate on seven-day REPO transactions (short-term borrowing secured by securities) was reduced from 15% to 14% per annum. Since September, this indicator has already fallen by 5 pp.
Earlier on Thursday, the Turkish lira rate again renewed its historical minimum, reaching 15.6 lira per US dollar. The Turkish currency has been depreciating since 2017, but the most noticeable collapse occurred this year, when it more than doubled – in January, about 7.3 lira was given for one dollar. Only on November 23, the lira lost 18% of its value in a day after the Central Bank cut the key rate from 16 to 15%.
Turkish President Recep Tayyip Erdogan is in favor of reducing the rate as a measure of restraining inflation. He believes that producers at high rates are forced to pass their costs on to buyers, and this leads to higher prices. Despite the rate cut, inflation in Turkey in November exceeded 21% in annual terms.
Since July 2019, Erdogan has dismissed three heads of the Central Bank, and on December 2, he replaced the Minister of Finance and Treasury amid the continuing weakening of the national currency.
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