Turkey cuts bank rate even as it grapples with earthquake

Feb 23, 2023, 5:23 AM | Updated: 5:33 am
Commuters arrive at the Karakoy ferry terminal as the sun sets behind Suleymaniye mosque, backgroun...

Commuters arrive at the Karakoy ferry terminal as the sun sets behind Suleymaniye mosque, background, in Istanbul, Turkey, Wednesday, Feb. 22, 2023. (AP Photo/Francisco Seco)

(AP Photo/Francisco Seco)

ANKARA, Turkey (AP) — Turkey’s central bank on Thursday resumed its policy of lowering a key interest rate even as the country grapples with high inflation and the aftermath of a devastating earthquake.

The bank’s Monetary Policy Committee said it cut the benchmark policy rate by 0.5 of a percentage point, down to 8.5%. The Central Bank of the Republic of Turkey, slashed the benchmark rate by 5 percentage points – down to 9% – between August and November but had left rates unchanged since then.

The cuts have come despite the country’s high inflation, which currently stands at 57.68% and has caused a cost-of-living crisis. Central banks around the world have raised rates to fight inflation in their countries.

The magnitude 7.8 earthquake that struck parts of Turkey and Syria on Feb. 6 killed more than 43,500 people in Turkey and destroyed 164,000 buildings. It has been described at the worst disaster the country’s modern history.

The central bank said the quake would not impact Turkey’s economy in the medium term.

“The impact of the earthquake on production, consumption, employment and expectations is being extensively evaluated,” the bank said in a statement. “While the earthquake is expected to affect economic activity in the near term, it is anticipated that it will not have a permanent impact on performance of the Turkish economy in the medium term”

The rate cuts are in line with President Recep Tayyip Erdogan’s unorthodox economic views that high borrowing costs cause high inflation, even though traditional economic thinking says raising interest rates help tame inflation.

Earlier this month, Erdogan criticized rate increases by central banks around the world, signaling his intention to lower interest rates further.

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Turkey cuts bank rate even as it grapples with earthquake