Turkish central bank cuts policy rate after earthquake

ISTANBUL: Turkey’s central bank lowered its policy rate by 50 basis points to 8.5% on Thursday, as expected, following a devastating earthquake that killed more than 43,000 people in southern Turkey this month.

“It has become even more important to keep financial conditions supportive to preserve the growth momentum in industrial production and the positive trend in employment after the earthquake,” the central bank said in a statement.

It said after its monthly monetary policy committee meeting that it will closely monitor earthquake driven supply-demand imbalances on inflation and stressed the importance of supporting economic growth and employment.

The decision had little impact on the lira, which traded at 18.8755, unchanged from its early levels. The currency has been mostly flat since the summer due largely to state management.

Even before the quakes, analysts said there could be more easing ahead of presidential and parliamentary elections due to be held by June, where President Tayyip Erdogan is expected to face the biggest political challenge of his two decades’ rule.

Last year the bank cut its key rate by 500 basis points in an unorthodox easing cycle designed to counter an economic slowdown, before keeping it steady at 9% in December and January. The stimulus came even as inflation soared above 85% last year and dipped only to 58% in January.

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Erdogan has urged monetary stimulus over the last several years aiming to achieve price stability by slashing borrowing costs, boosting exports and flipping chronic current account deficits to surpluses.

But the rate cuts sparked a late-2021 currency crash, which saw the lira lose 44% versus the dollar that year and another 30% in 2022, stoking inflation.

In a Reuters poll of 17 economists, the median forecast was for a 50-basis-point cut to minimise the economic impact of the earthquake. Nine economists expected a cut in the policy rate of up to 200 basis points, while eight institutions expected the rate to be kept steady.

Business groups and economists have said the earthquake could cost Ankara up to $100 billion to rebuild housing and infrastructure, while shaving one to two percentage points off economic growth this year.