Turkish Rate Cut No Longer Unthinkable as Lira Comes Raging Back

The dovish turn by global central banks could tempt Turkey to follow suit.

Having already laid the groundwork in April for a softer stance by removing a commitment to tighten monetary policy if necessary, Turkish central bank Governor Murat Cetinkaya is now overseeing an economy with a rising currency as the Federal Reserve and European Central Bank sound more open to stimulus.

Those gains in the lira may be enough to prompt policy makers to cut interest rates Wednesday, especially now that a slowdown in inflation is becoming entrenched. Adjusted for prices, interest rates in Turkey are about double the level among peers such as Russia and South Africa.

Most economists still predict Turkey’s benchmark rate will stay at 24% for a sixth straight meeting. But the cost of borrowing lira for a year using cross-currency swaps extended its longest stretch of declines on record this week, a sign that some traders are positioning for a rate cut.

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