Turkey’s central bank cuts rates to boost weary economy

Turkey’s central bank cuts rates to boost weary economy
The Turkish lira lost 30 percent of its value against the US dollar last year after suffering a hammering in Asian trade. (AFP)
Updated 13 September 2019

Turkey’s central bank cuts rates to boost weary economy

Turkey’s central bank cuts rates to boost weary economy

ISTANBUL: Turkey’s central bank cut its policy rate by 325 basis points to 16.5 percent on Thursday, delivering its second aggressive policy easing in less than two months as it seeks to boost a recession-hit economy and forget last year’s currency crisis.

The bank cited a recent decline in inflation and a global shift to easier monetary policy as it lowered its benchmark one-week repo rate from 19.75 percent, marking its latest step away from the emergency settings adopted last year.

The policy rate stood at 24 percent as recently as July, when the bank slashed interest rates by 425 points in its first policy change since the depths of the crisis, which tipped the largest economy in the Middle East into recession.

“At this point the current monetary policy stance, to a large part, is considered to be consistent with the projected disinflation path,” the bank said in a statement.

The “inflation outlook continued to improve” and in August “displayed a significant fall,” it added.

The Turkish lira lost some 30 percent of its value against the dollar last year and inflation soared to a 15-year high above 25 percent. Inflation has since eased to 15 percent and is expected to fall briefly to single digits in October thanks to the “base effect” measurement against last year’s spike.

The drop in inflation and a shift among the world’s major central banks to more accommodation has stemmed further losses in the lira and paved the way for rate cuts, set to continue until the year’s end.

The lira firmed to 5.6825 against the dollar after the announcement from 5.75 beforehand, and was up about 1 percent on the day.

According to a Reuters poll on Tuesday, economists expected the bank to lower rates by a median of 250 basis points. However before the decision, swap-market traders were expecting a cut of between 300 and 400 points.

The central bank’s governor, Murat Uysal, apponted in early July after his predecessor did not follow policy instructions, has said policy will aim to deliver a “reasonable” real interest rate.

Turkey’s President Recep Tayyip Erdogan is a self-described “enemy” of high interest rates and has said they, along with inflation, would fall to single digits soon.

On Thursday, the central bank said a “cautious” policy stance was necessary to keep the “disinflation process on track.” It added that inflation will likely slide “slightly below” its year-end forecast of 13.9 percent, which it made in July.

Ankara has attempted to boost lending by state banks to reinvigorate an economy that entered a recession last year and experienced contractions in the first two quarters of this year. 


Global shares, oil prices falter as US stimulus buzz fades

Global shares, oil prices falter as US stimulus buzz fades
Updated 16 January 2021

Global shares, oil prices falter as US stimulus buzz fades

Global shares, oil prices falter as US stimulus buzz fades

LONDON: Global shares stumbled on Friday as hopes of a fiscal boost from a $1.9 trillion US stimulus plan were smothered by the prospect of stricter lockdowns in France and Germany and a resurgence of COVID-19 cases in China.
European stocks followed Asian markets lower, with the pan-European STOXX 600 down 0.8 percent and London’s FTSE 100 0.8 percent weaker, with the latter clobbered by data showing Britain’s economy shrank in November for the first time since the initial COVID-19 lockdown last spring.
The MSCI world equity index, which tracks shares in 49 countries, was 0.3 percent lower. S&P 500 e-mini futures shed 0.3 percent to 3,779.
Oil prices, which had risen on a weak dollar and strong Chinese import data, dropped as COVID-19 concerns in China hit sentiment.
Brent was down $1.33, or 2.3 percent, after gaining 0.6 percent on Thursday. US West Texas Intermediate crude was down $1.17, or 2.1 percent at $52.44 a barrel, having risen more than 1 percent the previous session.
Brent and US crude were heading for their first weekly declines in three weeks.
Spot gold rose 0.1 percent to $1,847.00 per ounce.
While oil producers are facing unparalleled challenges balancing supply and demand equations with calculus involving vaccine rollouts versus lockdowns, financial contracts have been boosted by strong equities and a weaker dollar, which makes crude cheaper, along with strong Chinese demand.
“The recent resurgence in coronavirus infections, appearance of new variants, delayed vaccine rollouts and renewed lockdown measures in most major OECD economies has clouded the economic and demand recovery,” said Stephen Brennock of oil broker PVM.
“Simply put, near-term demand expectations aren’t too promising.”
Earlier on Friday, an Asian regional share index had edged near record highs after US President-elect Joe Biden proposed a $1.9 trillion stimulus plan to jump-start the world’s largest economy and accelerate its response to the coronavirus.
In prime time remarks on Thursday, Biden outlined a proposal that includes $415 billion aimed at the COVID-19 response, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities hard hit by the pandemic.
But that initial boost later faded as risk appetite waned, lifting bond prices and the dollar, and hitting equities.
“People are saying it’s a big number but markets are almost acting like its a disappointment,” said James Athey, investment director at Aberdeen Standard Investments.
“I think maybe the market was pricing an additional $2,000 cheque going to the US population, but what’s being proposed is a top-up of $1,400 to take the total to $2,000 because $600 has already been agreed.”
Investors also digested the prospect of rising taxes to pay for the plan.
“The concern is what it’s going to mean from a tax stand point,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
“Spending is easy to do but the question is how are you going to pay for it? Markets often ignore politics but they don’t often ignore taxes.”
Biden’s comments came after US Federal Reserve Chair Jerome Powell struck a dovish tone in comments at a virtual symposium with Princeton University.
Powell said the US central bank is not raising interest rates anytime soon and rejected suggestions the Fed might start reducing its bond purchases in the near term.
Investor concerns over the prospects for a global economic recovery were raised after France strengthened its border controls and brought forward its night curfew by two hours to 6 p.m. for at least two weeks to try to slow the spread of infections.
German Chancellor Angela Merkel called for “very fast action” to counter the spread of variants of the coronavirus.
Chinese blue chips eased 0.2 percent, snapping a four-week winning streak, after the country on Friday reported the highest number of new COVID-19 cases in more than 10 months.
US earnings season kicked into full swing with results from JPMorgan, Citigroup and Wells Fargo.
JPMorgan Chase reported a much better-than-expected 42 percent jump in fourth-quarter profit on Friday, driven by the release of some of the reserves it had built up against coronavirus-driven loan losses.
Investors will be looking to see if banks are starting to take down credit reserves, resume buybacks, and provide guidance that shows the economy is improving, said Thomas Hayes, chairman of Great Hill Capital in New York.
In the currency market, the US dollar rose.
The dollar index was at 90.407 versus a basket of currencies, up 0.2 percent on the day.
It was on track for a weekly gain of around 0.4 percent, making this its strongest week since November.
Against the stronger dollar, the euro was down 0.2 percent at $1.21325.
US yields stepped back as risk appetite waned. Benchmark 10-year Treasury notes yielded 1.1039 percent, down from a US close of 1.129 percent on Thursday, while the 30-year yield dipped to 1.8451 percent from 1.874 percent.
In Europe, Italy’s bond market was poised to end the week calmer, as 10-year bond yields were down 2 basis points at 0.59 percent.
Italian Prime Minister Giuseppe Conte resisted calls to resign on Thursday after a junior coalition party led by former premier Matteo Renzi pulled out of the government on Wednesday and stripped it of its majority.