Turkey’s Rate Cut Could Undermine Modest External Improvement: Fitch

The Central Bank’s 100 basis point rate cut and change in policy guidance will increase the challenge of bringing inflation under control and highlights the weak credibility of monetary policy, according to the international credit rating agency Fitch Ratings.

“The decision also risks undermining the recent partial recovery of the country’s international reserve position,” Fitch Ratings said.

The bank cut the one-week repo auction rate by 100 basis points to 18% on 23 September.

This was the first cut in the policy rate since Sahap Kavcioglu succeeded Naci Agbal as the Central Bank Governor in March following Naci Agbal’s removal by President Recep Tayyip Erdogan.

In its accompanying statement the Central Bank shifted its emphasis from maintaining real positive rates to focusing on core inflation dynamics. TRY fell to a record low against USD after the rate cut was announced.

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