Turkish lira tumbles after central bank announced rate cut

Ankara: Turkish lira slumped to its lowest level in eight months after Turkey’s central bank announced a shock rate cut despite soaring inflation.

The currency weakened as much as 1 per cent to as low as 18.1394 per US dollar, falling to its lowest level since December 20 before trading 0.8 per cent weaker as of 2:03 p.m. in Istanbul.

Policy makers lowered the benchmark rate to 13 per cent from 14 per cent on Thursday. All 21 economists surveyed by Bloomberg ahead of the decision had predicted rates would stay unchanged.

“Loosening the main policy rate to support growth suggests that bringing inflation back towards normal levels is no longer the primary target,” said Simon Harvey, head of FX analysis at Monex Europe Ltd. “FX traders are unlikely to take this development favourably.”

Turkey’s central bank opted to lower rates even with inflation running at a 24-year high of almost 80 per cent. Policymakers had previously stood pat on borrowing costs at their last seven meetings.

Turkey’s five-year credit default swaps, added 41 basis points, rising to the highest level since August 3. The Borsa Istanbul 100 Index also reversed gains to decline as much as 1.1 per cent.