Turkey's central bank cuts interest rates further
The Turkish central bank cut its benchmark rate for the fourth consecutive month even as inflation has surged and the lira has slid to fresh all-time lows, defying warnings that such a move would increase economic instability.
The bank slashed the rate to 14% from 15% on Thursday, continuing an easing cycle that began in September under the orders of President Recep Tayyip Erdogan, but gave no explicit forward guidance on the course it plans to take next year. The rate cuts have triggered rapidly rising inflation, which surpassed 20% in November, and steep declines in the lira, which has lost 40% of its value against the dollar since September.
Mr. Erdogan's staunch opposition to raising rates, premised on the unorthodox view that they cause rather than tame price rises, has left the central bank resorting to selling foreign reserves recently to reduce downward pressure on the lira, but analysts say this isn't a sustainable solution. The continuation of monetary easing despite extreme currency voltaility and rising double-digit inflation led ratings agency S&P to downgrade its outlook on the economy to negative at the end of last week, as it views rising risks to Turkey's externally leveraged economy.
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