Turkish Interest-Rate Cut Quakes Investors

The Turkish lira fell Thursday, after a surprise interest-rate cut has been decided by the country’s central bank. Similarly; Turkey’s bonds were subject to broad selloff, and investors now react by moving price in a higher risk of sovereign default, after the country’s central bank unexpectedly had decided cut interest rates.

The lira fell 0.8% against the dollar, the Turkish currency trades at 0.0553501, with one dollar buying 18.0221 lira, putting it near historic lows. Turkey’s currency has shed more than a quarter of its value against the dollar this year.

The cut in Turkey’s rate, to 13% from 14%, came as a surprise to economists and analysts who expected it would be held steady instead, as Turkey faces hot inflation and economic implications of the Ukraine war.

Contrary to economic orthodox belief, Turkey’s Erdogan believes that cutting interest rates tames inflation, and has called for lower rates in recent months. The action runs counter to decisions by other central banks around the globe, which tend to decide or ponder raising interest rates in order to contain widespread inflation driven by high energy prices.