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.