Turkey’s central bank pulled a fast one as it lowered interest rates, which may prove deleterious to Turkey’s economy and exchange traded fund (ETF).

The central bank lowered lending rate by 1% to 18.75% and cut key policy rate by .5% to 16.25% when the market generally expected the bank to leave rates unchanged, reports Polya Lesova for The Wall Street Journal.

Afterward, the Turkish lira fell 4.7% against the euro and 5% against the dollar, on top of 30% plunge against the dollar in the past three months.

In Instanbul, the IMKB-100 stock index fell 6.7% on Wednesday and has so far dropped 61% this year.

Analysts were baffled by the bank’s decision. They thought the reckless and dangerous move would most likely send the Turkish lira into a free-fall, which will also accelerate outflows from Turkish markets.

Even if sharp declines in oil and other commodity prices help reduce inflationary pressures, it was still surprising that the central bank cut rates when inflation remained above its official target.

Turkey has a current account deficit of 6% of gross domestic product (GDP) and an upcoming foreign debt maturity scheduled for next year amounting to $47 billion.

Turkey’s economy and ETF are likely to  balk at the prospect of rate cuts. The iShares MSCI Turkey Investable Market Index Fund (TUR) is down 64% since its April 1 inception.

Tags: Commodity ETFs, Eastern Europe, Emerging Markets, TUR, Turkey