Turkey’s central bank says surprise interest rate cut needed to sustain growth

Turkey’s central bank said on Thursday it delivered a surprise interest rate cut to drive economic growth and sustain employment amid growing geopolitical risk, adding rising loan rates have diminished effectiveness of monetary policy.

Even as inflation rose to nearly 80 percent in July, the bank slashed its key rate to 13 percent from 14 percent.

“It is important that financial conditions remain supportive to preserve the growth momentum in industrial production and the positive trend in employment in a period of increasing uncertainties regarding global growth as well as escalating geopolitical risk,” the bank’s monetary policy committee said.

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“Accordingly, the Committee has decided to reduce the policy rate by 100 basis points, and has assessed that the updated level of policy rate is adequate under the current outlook.”

It added that “the recent increase in spread between policy rate and the loan interest rate is considered to reduce the effectiveness of monetary transmission.”

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