Turkey’s central bank cut interest rates for the sixth time in a row, dropping its repo rate from 11.25 percent to 10.75.
With inflation clocked at 12.15 percent, the real interest rate – the difference between the interest rate and inflation – is -1.40 percent.
President Tayyip Erdoğan is pressuring the bank to bring interest rates to single digits in hopes of restarting the robust, credit-fueled growth that characterized the economy in recent years.
Analysts worry that lower interest rates will worsen inflation and the government’s annual deficit and further weaken the Turkish lira, which closed down 0.2 percent against the dollar after the latest rate cut was announced.
Erdoğan – who recently has tightened his control over the bank – holds the view, contradicted by history, that high interest rates cause inflation.
His goal is to bring interest and inflation down into single digits this year.
Goldman Sachs analysts expect the central bank to gradually edge rates down into single digits, perhaps a quarter-point at a time, but warned there’s little room to cut rates much more while inflation is high. Lower rates also make the lira’s volatility a “key risk,” the analysts said.
