Surprised the markets yesterday Bank of Turkey, not because he cut interest rates yet again despite skyrocketing inflation, but because the cuts exceeded all expectations. It was over the estimate by 100 basis points and became the third in a row. At the same time, the Bank of Turkey signaled that the rate cut cycle that pushed it very loose monetary policy to new extremes, coming to an end. The Monetary Policy Committee, led by Governor Sahab Chavcioglu, lowered the weekly refinancing rate from 12% to 10.5%. inflation in Turkey it soared above 83% – and always in dispute with the official figures. The central bank said it would consider taking “similar steps at its next meeting and close the cycle of interest rate cuts.” Most economists expected a cut, given his repeated and persistent calls. Erdogan cut interest rates to single digits by the end of the year. However, they calculated that the new decline would not exceed 100 basis points, given that inflation in the neighboring country is at its highest level since 1998 and has worsened people’s living standards.

The weekly refinancing rate was reduced to 10.5% from 12%.

The market reaction to the new unwarranted choice of the central bank was tepid, with the pound showing only minor changes when the news broke. OUR Turkey this went against the prevailing trend of the time as most central banks moved to aggressively raise rates to counter inflation surges. It was, after all, preceded by an immediate market surprise when the central bank cut interest rates again in August, resuming a round of monetary easing after a pause of several months.

Economists who spoke to Bloomberg warned that the central bank’s compliance with Erdogan’s demands carries the risk of a new crisis. An earlier round of 500 basis point rate cuts in 2021 led to a currency crisis and pushed inflation to its highest level in decades. Seeking another term in office, Erdogan is prioritizing growth over price and lira stability. The Turkish lira has depreciated 28% since the beginning of the year and is the worst of all emerging market currencies, with the exception of the Argentine peso and the ruble.