Turkey’s new central bank governor slashes rate 425 basis points to 19.75%

A board showing foreign currency exchange rates against Turkish lira is on display at a currency exchange office in Istanbul, Turkey, on July 25, 2019. REUTERS/MURAD SEZER

“They’re rolling the dice,” said Paul McNamara, a London-based money manager at GAM UK. “A very, very risky strategy. The worst-case scenario.” The sharp pivot toward monetary easing runs the risk of spooking inflation-wary investors in pursuit of Erdogan’s unorthodox theory that high interest rates cause rather than curb price growth. He fired Murat Cetinkaya as governor for failing to act, leaving Uysal with the challenge of how to navigate the conflicting demands of the presidency and markets.

Powerful base effects are likely to continue to choke off inflation, which is already down almost five percentage points so far in 2019. On Thursday, the central bank said recent forecast revisions indicated that inflation will probably end the year below the 14.6% projected in its April report. The lira’s fortunes have also reversed, especially after US President Donald Trump indicated that the US may reassess a threat to sanction Turkey over its purchase of a Russian defence system. The currency is the world’s best performer since the start of May.

Source: Financial Digest (financialdigest.net)

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