Business Maverick: Turkey set on ultra-loose course after shock rate cut

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The country’s central bank isn’t about to reverse course after a shock decision to cut interest rates last month and may even surprise by easing monetary policy again despite raging inflation.

Elections less than a year from now are likely to set the tone for policy makers because President Recep Tayyip Erdogan is counting on ultra-loose money to pump up economic growth and create new jobs. The insistence on keeping borrowing costs low means another rate cut could be in the cards.

Erdogan and his ally at the central bank, governor Sahap Kavcioglu, are sticking to an unorthodox playbook that resists rate hikes to contain inflation. The approach has encouraged economic growth at the expense of price stability and left Turkish assets more vulnerable to sell-offs. “We interpret August’s rate cut not as guidance from the bank that rates will be cut further but as a signal that policy will not be tightened or that lending conditions are to be loosened,” Goldman Sachs Group economists including Clemens Grafe said in a report.that macroprudential measures and policies aimed at widening the use of the lira will be used to achieve price stability. He’s the fourth central bank governor since 2019 after Erdogan fired three predecessors.

 

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