Middle East

INSTANT VIEW Turkey shock 200 bps rate cut sends lira to fresh record low

2 minute read

A logo of Turkey's Central Bank is pictured at the entrance of its headquarters in Ankara, Turkey October 15, 2021. REUTERS/Cagla Gurdogan/File Photo

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LONDON, Oct 21 (Reuters) - Turkey's central bank slashed interest rates by a surprise 200 basis point cut on Thursday, sending the lira to a fresh record low.

Below is analyst reaction:

ULRICH LEUCHTMAN, COMMERZBANK, FRANKFURT

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"The move is consistent with Erdogan's view, but his monetary policy is simply wrong and now we are running the risk of entering a territory where the real economy will get seriously hurt by the currency."

"It is difficult to tell what will happen now - I think it is very likely that we will get into a situation like 2008 again, and eventually they will be forced to deliver emergency hikes. But they are so dug into their positions.

"All this can only end in a lira crash."

"The horror scenario for Turkey is that the markets have learned the lessons from 2008, and that lesson was that even if the central bank delivers an emergency rate hike to prop up the lira, they are still likely to cut again too soon afterwards. This makes any emergency rate hike they might now be forced to deliver much less effective."

"The risk of an exponential devaluation in the near future is so great now that it would be appropriate to not have any open lira positions at this point. "

TIM ASH, BLUEBAY ASSET MANAGEMENT, LONDON

"The CBRT surprises everyone again. The market was thinking the worst case was a 100 bps cut but Kavcioglu delivered a 200 bps cut. Think the message to Kilicdaroglu and the market is clear - I listen to Erdogan and no one else. Screw you guys!"

"The boss wants lower interest rates, and who am I to stand in the way of that. Insane monetary policy experiment going on in Turkey at present. It feels like the lira and inflation will suffer the consequences."

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Reporting by Karin Strohecker; Editing by Saikat Chatterjee

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