Turkish central bank surprises with cut in overnight lending rate

Turkey's central bank cut its overnight lending rate by 75 basis points in a surprise move on Wednesday despite stubborn inflation, in its first rate decision since Prime Minister Tayyip Erdogan was elected president. The bank cut the lending rate to 11.25 per cent from 12 per cent, and also cut its overnight borrowing rate for primary dealers to 10.75 per cent. It left other key rates including its main 8.25 per cent weekly repo rate on hold. Earlier this month, the central bank said the inflation forecasts from its monthly survey had risen to 8.7 per cent at the end of the year from 8.3 per cent previously, despite its aggressive rate hike in January. The majority of economists polled by Reuters say high inflation undermines the case for rate cuts. But Erdogan, wedded to the idea that high rates in fact cause inflation, has repeatedly urged the central bank to make bigger rate cuts, after an emerging market sell-off in January forced it to almost double rates at a midnight meeting, according to Reuters.