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Turkey cuts interest rate

By Hazel Davis

Central bank carves deeper than anticipated

Turkey’s central bank has cut its benchmark interest rate by 2.5 percentage points, deeper than expected, with an improved inflation outlook.

US president Donald Trump announced the lifting of recently imposed sanctions on Ankara, which helped the lira briefly recover. It slumped again after the interest rate cut announcement.

The lira has survived three large interest rate cuts since June. Political turmoil led to the sacking of its central bank governor for refusing to cut rates. Turkey has also been involved in military activity in Syria.

This survival is in part due to global investors’ desire for higher-yielding assets.

BlueBay Asset Management strategist Timothy Ash called the surprising new reduction “perhaps a risky move”, in a note to clients. He added: “But this is a risk-taking central bank and administration. They are happy to take the market on.”

The Turkish government has posited a 5 per cent growth rate in 2020. Experts have speculated whether this ambitious figure will come from its foreign currency reserves.

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