Turkey rate cut 'sends mixed message,' says Fitch
Sunday, May 25, 2014
LONDON - Turkey's decision to cut its benchmark interest rate sends a mixed message regarding monetary policy that may injure its credibility, Fitch Ratings said in a written statement Friday.
The ratings agency's statement came a day after Turkey's Central Bank, for the first time in a year, cut its main interest rate by 50 basis points to 9.5 percent from 10 percent while leaving other rates unchanged.
"Cutting the main policy rate as inflation continues to head upwards towards double digits reinforces our judgement that policy coherence and predictability remain weaker in Turkey than in some of its rating peers," the agency said.
After a sharp increase in interest rates in January, Turkish Prime Minister Recep Tayyip Erdogan and business leaders recently called on the bank to lower them, citing higher-than-expected growth figures and economic indicators.
Fitch Ratings, however, warned that the cut "highlights the risk that policy reversals could undermine economic adjustment."
"Continued lira strengthening and the approach of presidential elections in August could set the stage for a further rate cut this summer," the statement said.
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