ANKARA, February 24: Türkiye’s central bank on Thursday cut its main interest rate by 50 basis points to 8.5 percent, a move aimed at protecting the country’s economy in the aftermath of devastating earthquakes that have added to the economic problems of the country.
Interest rates are now “adequate to support the necessary post-earthquake recovery by maintaining price stability and financial stability,” the bank’s Monetary Policy Committee said in a statement.
“While the earthquake is expected to affect economic activity in the short term, it is anticipated that it will not have a permanent impact on the performance of the Turkish economy in the medium term,” he said.
In 2022, the central bank followed a 500 basis point easing cycle in line with President Recep Tayyip Erdogan’s loose monetary policy to rein in runaway inflation and kept its policy rate steady at 9 percent in December last year and January. .
When its southeastern region was struck on February 6 by two successive, massive earthquakes that have so far claimed the lives of 43,556 people, Türkiye was on its way to recover from the 24-year high inflation of 85 percent recorded in October last year. .
Türkiye’s annual inflation dipped to 57.68 percent in January and is forecast to continue falling throughout the year. Yet it’s still staggering, and households are still reeling from high prices for basic goods.
According to economists, the February earthquakes would generate considerable reconstruction spending and slower economic growth.
Before the earthquakes, the Turkish government predicted that economic growth would be 5% in 2022 and 5.5% in 2023.
According to an estimate by the Turkish Business and Enterprise Confederation (Turkonfed), the earthquakes could cost the country up to US$84.1 billion.
US bank JP Morgan had a more conservative estimate, saying damage from the quakes could cost $25 billion.
In addition to rebuilding, there are other costs as well, such as living expenses for the hundreds of thousands of people affected by the earthquakes.
Ankara’s government has banned layoffs in the 10 quake-hit provinces and offered financial incentives for tens of thousands of homeless people.
About 13.4 million people live in the vast region affected by the earthquakes, which accounts for about 9 percent of the country’s gross domestic product (GDP).
Once the immediate consequences of the disaster fade, economic growth will pick up in the medium term when reconstruction begins, Baki Demirel, an economist and academic at Türkiye’s Yalova University, told Xinhua.
“In addition to the thousands of collapsed buildings, the earthquakes also damaged power facilities, infrastructure, transportation, irrigation and logistics, and it will take time and money to rebuild (those facilities),” he said.
With general elections scheduled for June, Erdogan, whose administration has faced criticism for poor coordination in earthquake rescue operations, has vowed to rebuild new homes for the millions of people affected by the quakes within a year.
