SMM News: the Bank of Turkey announced a sharp cut in the one-week repo rate by 425 basis points, the biggest rate cut since 2002 and the bank's first rate cut since 2016.
Turkey's central bank cut its benchmark seven-day repo rate to 19.75 per cent from 24 per cent, well ahead of market expectations of 250 basis points to 21.5 per cent.
In a public statement on the interest rate resolution, the central bank said that the recent weakening of global economic activity and the increased risk of downward inflation have increased the likelihood of central banks in advanced economies adopting expansionary monetary policy. At the same time, domestic inflation is likely to be slightly lower than forecast in the April inflation report by the end of the year. As a result, the Committee decided to cut interest rates by 425 basis points.
The governor of the Turkish central bank has just been expelled from the president
Before the rate cut, inflation in Turkey fell to 15.72% in June, the lowest level in nearly a year, to 18.71% in May, and real interest rates were as high as 8.28%.
Turkish President Recep Tayyip Erdogan (Recep Tayyip Erdogan) has long complained that high interest rates have pushed up inflation rather than curbing it, so interest rates need to fall rapidly. Because his theory is diametrically opposed to the traditional economic point of view, it is called unorthodox theory by economists.
To this end, on the 6th of this month, Erdogan made the decision to replace the governor of the Bank of Turkey, by Deputy Governor Murat? The succession of 木拉提 Uysal has raised concerns among investors about the independence of its central bank, which has been grappling with runaway inflation. Murat? 木拉提 Cetinkaya, who has been in charge of the Bank of Turkey since April 2016, ignored President Erdogan's advice and raised the central bank's main policy rate at the end of last year.
Cetinkaya's move to raise its main policy rate to 24 per cent in September appears to have helped slow inflation growth in Turkey from 25 per cent last summer to 15.7 per cent in June. Last month, however, President Erdogan promised a final solution by rapidly lowering the central bank's main policy rates. The opinion has sparked opposition from some, including some of Mr Erdogan's former allies, who argue that the rate cut is not appropriate at the current point and will do serious harm to the economy.
The ECB stands still
The European Central Bank stood still as expected on Thursday, keeping interest rates unchanged. The ECB announced that the main refinancing rate would remain unchanged at 0 per cent, the marginal lending rate at 0.25 per cent and the deposit facilitation rate at-0.4 per cent.
However, as eurozone economic data worsened, the ECB hinted that it would cut interest rates in September and could restart its massive bond-buying programme.
The ECB has also adjusted its forward-looking guidelines, which are expected to leave existing key interest rates unchanged or lower until at least the first half of 2020, require a longer period of high easing, reinvest bond income over a longer period of time, and order an assessment of policy options, including interest rate stratification and the potential QE, stands ready to adjust all instruments to ensure that inflation moves towards its target in a sustained manner.
The euro rose more than 80 points against the dollar in the short term after the announcement.
Global interest rate cut begins
What the world is most concerned about is whether and how much the Fed will cut interest rates in July. In fact, many countries have already opened the curtain of interest rate cuts earlier, and the faucet has long been turned on. On July 18th four central banks cut interest rates, including 25 s & p in south Korea, 25 BP in Indonesia, 17% in Ukraine and 25bp in south Africa.
The market focuses on the Federal Reserve next week.
Next Thursday (Aug. 1), the Fed will meet soon, when there will be three options: keep interest rates unchanged, cut interest rates by 25 basis points, and cut interest rates by 50 basis points. The cycle of interest rate increases in the US has come to an end, but when to start the cycle of rate cuts is still in doubt, and in any case, the Fed's meeting next week is bound to be the focus of the market.
According to the latest Fed Watch data, the probability of the Fed cutting 25bp by 79% and 50bp by 21% by the end of July, in other words, 100%.
JPMorgan Chase (115.71,-1.12,-0.96%) released its latest forecast for the Fed earlier this month, cutting interest rates twice in 2019;
Barclays, which had expected the Fed not to cut interest rates until the end of 2020, is expected to cut interest rates by 75 basis points this year, starting with a 50 basis point cut in September.
Rabobank expects the Fed to cut interest rates five times by the end of 2020.
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