Turkish Central Bank expected to cut key interest rate to 12.5 pct: report

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Turkey’s Central Bank headquarters is seen in Ankara.

Turkey’s central bank is expected to cut its key interest rate to 12.5 percent from 14 percent next week, sustaining an easing cycle designed to revive the economy and bring real rates below levels in most emerging markets, Reuters reported, citing an agency poll.

The central bank has cut rates three times since July, when the policy rate stood at 24 percent following a currency crisis which knocked nearly a third off the value of the lira last year and pushed Turkey into recession.

After peaking at more than 25 percent in October of last year, inflation has since slowed substantially and stood at 10.56 percent in November, near its three-year lows, reinforcing expectations for a sizeable policy rate cut at next week’s policy meeting.

In a Reuters poll of 20 economists, the median estimate was for a 150-basis point interest rate cut to 12.50 percent. Estimates ranged between 12 percent and 13 percent.

The central bank says it sets its monetary stance to leave a “reasonable” real rate. Turkey’s current real interest rate stood at 3.44 percent, while average real rate in peer emerging market economies is calculated at 2.88 percent.

The central bank and economists polled by Reuters expect inflation to stand at 12 percent at end-2019, while Turkish Finance Minister Berat Albayrak said it may end up lower than that.

The bank increased the number of its Monetary Policy Committee (PPK) meetings to 12 next year which would allow them to give a prompt response to market changes, economists say. The central bank is expected to announce its rate decision at 1100 GMT on Dec. 12.

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