Turkey’s Central Bank slashes interest rates after devastating earthquakes

Turkey’s Central Bank delivered a fresh interest rate cut on Thursday as the Turkish government scrambles to offset the economic impact of the twin earthquakes that killed more than 43,550.

The bank announced that the country’s policy rate has been lowered by 0.5 percentage points from 9% to 8.5%, citing the need for economic growth and the earthquakes' impact on the economy.

As of this writing, the Turkish lira stood at 18.8752 against the US dollar, slightly weakening from a close of 18.8802 Wednesday.

Under political pressure from Turkey’s President Recep Tayyip Erdogan, the country’s Central Bank embarked on a series of unorthodox rate cuts over the past year. It brought its policy rate to single digits from 14% to 9%, starkly contrasting with its emerging economy peers that have been increasing their policy rates to weather the fallout from the Ukraine war, which has further pushed up the prices of energy and other major commodities.

Erdogan, who holds the unconventional view that high interest rates cause inflation, prioritizes economic growth at the expense of addressing an inflation storm that has been further fueled by rate cuts. Turkey’s year-on-year inflation reached a 24-year high of 85.5% last year, before dropping to 64.27% in January owing largely to a favorable base effect from previous year, Al-Monitor reported.

Experts predict that the earthquakes, which led to enormous destruction in 11 of the country’s provinces, will likely affect the country’s economic growth as the affected provinces account for about 9% of Turkey’s GDP. The quakes hit the country just a few months ahead of critical presidential and parliamentary elections due in June at the latest.

“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 bank said in a statement on Thursday.

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