Ankara - Turkey's central bank on Tuesday cut its main interest rate by 75 basis points following stringent pressure from the government of Prime Minister Recep Tayyip Erdogan for an aggressive reduction to stimulate growth.
The Ankara-based bank's policymakers, led by governor Erdem Basci, pruned the one week repurchase rate to 8.75 percent from 9.5 percent but left the other rates unchanged, the bank said in a statement.
It was unclear if the move by the bank - which is theoretically independent - would placate the government's desire for more relaxed monetary policy ahead of August presidential elections.
The bank's monetary policy committee decided on a “measured decrease in the one-week repurchase rate considering the improvement in the global liquidity conditions in recent months,” it said in a statement.
It kept its overnight lending rate at 12.0 percent and the overnight borrowing rate at 8.0 percent.
Erdogan's Islamic-rooted government has piled pressure on the bank to stimulate growth in the run-up to the elections in which the prime minister is tipped to run.
On Monday, Economy Minister Nihat Zeybekci called for a sharp cut in the rates, saying that they should be lowered to the level at which they stood before January's aggressive rate hike.
In defiance of the government, the central bank raised key rates in January in a bid to stem a steep drop in the value of the country's national currency the lira, raising the one-week repurchase rate from 4.5 percent to 10 percent.
Last month, the bank brought down that rate from 10.0 percent to 9.5 percent but drew Erdogan's wrath for being too timid.
With the latest cut, the bank “is trying to balance the need to maintain credibility in the markets on the one hand and government pressure to lower interest rates substantially on the other,” economists at the Capital Economics consultancy said in a note to clients.
It noted that “the macroeconomic data provide little justification to ease policy”.
The central bank has replaced five executives after Erdogan's strong criticism of the interest rate policies pursued by its governor, who gave a hint of another small cut in interest rates last week.
Turkey's markets were hit by a series of domestic policy crises from last year's mass street protests to a corruption scandal that implicated the prime minister and his inner circle, as well as a global retreat from emerging markets. - Sapa-AFP