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Lira drops as Turkey cuts rate by more than expected

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Lira drops as Turkey cuts rate by more than expected

Türkiye Cumhuriyet Merkez Bankası AS cut its base rate by more than expected, as the inflation outlook continued to improve.

The central bank reduced the one-week repo auction rate to 14% from 16.5%, versus predictions for the country to lower rates by 100 basis points. This was the central bank's third straight rate cut since July, when Murat Çetinkaya was forced out as governor.

The central bank under the leadership of Murat Uysal has been on an easing spree, though Muhammet Mercan, chief economist for Turkey at ING, said the case for further easing in December has "significantly weakened" after today's decision.

Lira's losses mounted versus the U.S. dollar after the announcement. It was trading 0.6% down around 8:20 a.m. ET.

Though recent indicators point to continued recovery in economic activity, investment demand remains weak as deteriorating global economic outlook tempers external demand, the central bank said.

"The [Monetary Policy 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.

Consumer inflation declined in September, particularly in core goods and food.

"We think inflation will probably remain in single digits in October and reverse thereafter because of unsupportive base effects," Mercan said.

Central banks around the world have been pursuing expansionary policies to counter the effects of global policy uncertainty and downside inflationary pressure, the central bank said.

U.S. President Donald Trump said Oct. 23 that the U.S. will lift all sanctions it imposed against Turkey, which has vowed to stop its military offensive in northeastern Syria and achieve a "permanent" ceasefire.