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Turkey’s central bank has limited policy space after “front-loaded” monetary easing in July and September, Governor Murat Uysal said in a rare public appearance to address industrialists. The lira reversed losses against the dollar.
“A cautious stance in monetary policy will continue,” Uysal said in a speech in Ankara on Wednesday. “The improving trend in inflation is expected to continue in the upcoming period.”
Installed in July after President Recep Tayyip Erdogan’s shock ouster of his predecessor for not lowering rates fast enough, Uysal has now brought the easing under his watch to 7.5 percentage points. While the Monetary Policy Committee already signaled less scope for steeper moves, the governor is delivering an even clearer message of the limits to further monetary stimulus.
The lira, which weakened as much as 0.3% earlier Wednesday, reversed losses after Uysal’s comments and traded little changed against the dollar as of 12:03 p.m. in Istanbul.
As the economy is only starting to make up ground lost during a short-lived recession and there’s little room for fiscal stimulus, the central bank is taking center stage for Erdogan, who believes that high rates cause rather than curb price growth.
Turkish inflation has dropped to an annual 15% in August from an October high of 25.2%, with the central bank projecting that it’s now likely to end the year below its earlier forecasts.
Just days ahead of this month’s rate meeting, Erdogan laid down a marker for the central bank, suggesting Turkey will lower borrowing costs to single digits soon and inflation will follow suit. After a record cut in July and another decrease this month, the key rate is now at 16.5%.