Earthquakes force Türkiye to cut interest rates by 50 basis points

Despite inflation surpassing 85% in 2022, falling to 58% in January
Earthquakes force Türkiye to cut interest rates by 50 basis points
Türkiye's Central Bank

Türkiye’s Central Bank cut its key interest rate by 50 basis points to 8.5 percent, as expected, in the aftermath of this month’s devastating earthquake in the country’s south.

Read more: Deadly 7.8 magnitude earthquake hits southeast Türkiye

The bank cut interest rates by 500 basis points over the last year in an unconventional easing cycle intended to counteract the economic slowdown, before maintaining them at 9 percent in December and January. This is despite the fact that inflation exceeded 85 percent last year and only fell to 58 percent in January.

In a poll of 17 economists conducted by Reuters, the average expectation was for interest rates to be cut by 50 basis points to mitigate the economic repercussions of the earthquake.

Business groups and economists estimate that the earthquake will cost Ankara up to $100 billion to rebuild housing and infrastructure, and will reduce economic growth by one to two percentage points this year.

Read more: Türkiye struck again by earthquake of magnitude 6.4

Following the worst earthquake disaster to strike Turkey in decades, the country’s economy is facing a new shock that threatens growth and will put a strain on the budget, which ended last year with the lowest deficit in more than a decade.

The quake affected several provinces, accounting for roughly a tenth of Turkey’s economic output, prompting the Turkish Central Bank to provide monetary stimulus in an attempt to revive economic growth, though interest rates were low in comparison to high-interest rates.

According to Reuters, an informed source at the Central Bank of Turkey said last week that the bank’s donations to earthquake-affected areas, totaling 30 billion liras ($1.6 billion), will be paid from the bank’s profits last year.

Last week, Türkiye launched a donation campaign for earthquake victims, collecting more than 115 billion liras ($6.1 billion) in a live broadcast from individuals and companies.

For more on Turkey, click here.

The stories on our website are intended for informational purposes only. Those with finance, investment, tax or legal content are not to be taken as financial advice or recommendation. Refer to our full disclaimer policy here.