Turkey: Surprise rate cut sends lira to a new record low

Turkey’s central bank slashed interest rates by a full percentage point to 18 percent.

Turkey’s lira fell to a record low after the central bank cut its benchmark interest rate on Thursday, unleashing a new bout of market turbulence and reflecting the long shadow cast by President Recep Tayyip Erdogan over monetary policy.

The Monetary Policy Committee reduced its key one-week repo rate by 100 basis points to 18%. All but one of the 23 economists surveyed by Bloomberg predicted the central bank would keep rates unchanged at 19%.

Turkish inflation unexpectedly climbed to 19.25% last month, pushing the nation’s real interest rate below zero for the first time since October. But Governor Sahap Kavcioglu shifted the bank’s policy focus earlier this month to core inflation, which strips out volatile items like food and energy and is nearly 250 basis points lower than the headline figure, giving him room to heed Erdogan’s calls for lower interest rates.