The tightness in monetary stance has started to have a higher than envisaged contractionary effect on commercial loans. Today, the bank’s policy committee said a rate cut was “needed” because of the lower core price measures – which strip out food and some other goods – as well as shocks to supply in the wake of pandemic measures. The Turkish Central Bank is notorious for having its governors – hand picked by Erdogan in recent years – also get fired by Erdogan if they defy the core tenets of “Erdoganomics” and refuse to cut rates to tame soaring inflation. Kavcioglu strategically shifted his emphasis to (lower) core inflation as a reference benchmark, which stood below 17% in August, instead of headline CPI and had said policy was tight enough to cool price rises in the fourth quarter. In retrospect, the cut should have been more widely expected after Governor Sahap Kavcioglu – who is the latest central bank head installed by Erdogan to serve at his behest at the “independent” bank – sounded more dovish in recent weeks, paving the way for Turkey’s first monetary easing since May 2020 and ending a tightening cycle that began 12 months ago. Only two of 17 polled economists had predicted a cut. The central bank was widely expected to hold interest rates steady at 19%, where they had been since March, given inflation soaered to 19.25% last month, the highest level since Turkey’s FX crisis in 2018. Turkey’s currency plunged to a new all time low, with the USDTRY rising as high as 8.8017 after Erdogan’s central bank unexpectedly cut its policy rate by 100 basis points to 18% on Thursday, delivering stimulus long sought by President Erdogan despite soaring inflation.