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The
central bank was widely expected to hold interest rates steady
at 19%, where they had been since March, given inflation reached
19.25% last month. Only two of 17 economists polled by Reuters
had predicted a cut.
But Governor Sahap Kavcioglu - whom Erdogan installed at the
bank in March - has sounded more dovish in recent weeks, paving
the way for Turkey's first monetary easing since May 2020 and
ending a tightening cycle that began 12 months ago.
Kavcioglu had begun emphasising core inflation, which stood
below 17% in August, and had said policy was tight enough to
cool price rises in the fourth quarter.
The bank's policy committee said a rate cut was "needed" because
of the lower core price measures - which strip out food and some
other goods - as well as shocks to supply in the wake of
pandemic measures.
The recent rises in inflation "are due to transitory factors",
it said. "The tightness in monetary stance has started to have a
higher than envisaged contradictory effect on commercial loans."
The lira fell as much as 1.5% and stood at 8.76 against the
dollar at 1123 GMT, near an all-time low of 8.88 set in June.
Depreciation brings further inflation in Turkey due to imports
priced in hard currencies.
"Obviously the currency has weakened and it will weaken further,
but I don't think you are going to see it blow up completely
because there was some positioning for this," said Peter Kisler,
emerging markets portfolio manager at Trium Capital.
The central bank's dovish pivot this month had prompted analysts
to warn of a "policy mistake" if cuts come too soon, though most
predicted they would come before year end. Investor jitters
drove a more than 4% currency devaluation this month.
Foreign investors have dumped Turkish assets in recent years due
in part to concerns over the political independence of the
central bank, given Erdogan ousted its last three governors over
a 20-month span due to policy disagreements.
A self-described "enemy" of interest rates, Erdogan said in June
he spoke to Kavcioglu about the need for a rate cut in August.
Last month, he said "we will start to see a fall in rates".
(Reporting by Ali Kucukgocmen and Daren Butler; Additional
reporting by Marc Jones in London; Editing by Jonathan Spicer
and Catherine Evans)
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