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Lira jumps as Turkish central bank delivers less aggressive rate cut

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Lira jumps as Turkish central bank delivers less aggressive rate cut

The Turkish central bank slashed its policy rate by 325 basis points to 16.5% amid ongoing economic recovery and disinflation, a move that did not seem as aggressive as markets had predicted.

The Türkiye Cumhuriyet Merkez Bankası AS' monetary policy committee said net exports contributed positively to economic growth in the first half, with expectations that the trend would continue. Investment demand, however, remained weak.

Turkish consumer inflation declined significantly in August, and recent forecast revisions indicate that inflation may come in slightly below the projected 13.9% at the end of 2019. The central bank added that stability in the Turkish lira, improved inflation expectations and mild domestic demand conditions supported disinflation in core indicators.

The Turkish lira gained 1.1% around 7:30 a.m. ET.

Swap-market traders expected the bank to slash rates between 300 points and 400 points, ahead of the decision, though economists polled by Reuters had predicted the bank to cut rates by a median of 250 basis points.

Markets were positioned for more aggressive cuts than expected by economists, Nordea analyst Morten Lund said, adding that a survey conducted by Bloomberg reflected a median estimate of a 275-basis-point cut.

"The committee assesses that maintaining a sustained disinflation process is the key for achieving lower sovereign risk, lower long-term interest rates, and stronger economic recovery," the central bank said.

The central bank said it will maintain a "cautious monetary stance" to keep the disinflation process in line with its targeted path.