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Turkish central bank cuts key rate to boost ailing economy

By AP - Sep 22,2016 - Last updated at Sep 22,2016

ANKARA, Turkey — Turkey's central bank cut a key interest rate for the seventh month in a row on Thursday as it tries to shore up an economy that has been shaken this year by a series of bombings and an attempted coup.

The bank said it had cut its overnight marginal funding rate to 8.25 per cent from 8.5 per cent. That is intended to help banks borrow more cheaply from day to day, which could help keep the financial system running smoothly at a time of heightened uncertainty.

The central bank said recent indicators for the first quarter pointed to a "deceleration" in economic activity and that current "financial conditions are tight".

"With the supportive measures and incentives provided recently, domestic demand is expected to recover starting from the final quarter," said the bank, which also kept its one-week rate at 7.5 per cent.

Turkey's economy has suffered this year in the face of a string of extremist attacks and uncertainty following the failed coup on July 15 that saw more than 270 people killed. Tourism, a key component of the economy as well as a substantial foreign-currency earner, has taken a hit.

Though the central bank noted that developments in tourism revenues will have "a negative impact" in the short run, it said the recent fall in the country's currency, the lira, will help improve the nation's current account. Demand from the European Union continues to support exports, it added.

Turkey needs foreign capital to help finance its sizeable current account deficit, which stood at around 4.5 per cent of the country's annual GDP in 2015.

The bank said one positive emerging from the moderation in economic growth is that underlying inflation is easing.

However, recent changes in fuel prices and other increases in costs will limit the drop in inflation. As a result, it said a "cautious monetary policy stance" was still required.

 

The fear for many is that Turkey is moving towards a more authoritarian model of governance — a trend that could further dent any hopes that the country has of joining the European Union.

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