Turkish Central Bank cuts interest rate to 13% to ramp up economic activity

By Aysu Bicer

ANKARA (AA) - Türkiye's Central Bank on Thursday cut its interest rate by 100 basis points to 13% from 14% in an effort to shore up growth, it announced in an official statement.

After Russia and China, Türkiye's Central Bank also lowered rates to help ensure economic activity would not slow down, despite economists' previous expectations that rates would remain unchanged.

"Increase in inflation is driven by the lagged and indirect effects of rising energy costs resulting from geopolitical developments," the bank said, adding that the effects of "pricing formations" not supported by economic fundamentals, as well as strong negative supply shocks caused by the rise in global energy, food, and agricultural commodity prices were also responsible for climbing inflation.

The bank also said it expects the process of disinflation to start amid measures to strengthen sustainable prices and financial stability, along with the resolution of ongoing "the regional conflict."

Noting that leading indicators for the third quarter pointed to a loss of momentum in economic activity, the bank underlined that financial conditions remained supportive of preserving "growth momentum in industrial production."

It vowed to "continue to use all available instruments decisively within the framework of liraization strategy until strong indicators point to a permanent fall in inflation."

Türkiye's annual inflation rate was at 79.6% in July, up from 78.6% in June.

Annual inflation is projected to hit 60.4% by the end of this year and 19.2% by the end of 2023.

The previous estimates were 42.8% for 2022 and 12.9% for 2023.

For 2024, the bank expects the inflation rate to be at 8.8% by the end of the year.