Ankara, Turkey – Turkey’s central bank on Thursday dropped its key interest rate by half a percentage point to 8.5 percent, saying the cheaper borrowing cost would bolster earthquake recovery efforts even as inflation rages.
Turkey was already battling runaway inflation and relying on wealthy allies to keep its economy afloat when the massive earthquake on February 6 killed more than 43,000 people, razed entire cities and left millions needing urgent help.
It must now pour billions of dollars into rebuilding 11 southeastern provinces flattened by the disaster, the worst in its post-Ottoman history.
The central bank said the cut to its key rate would support employment and industrial output, and predicted a quick recovery despite the economic toll.
“Despite the expected impact of the earthquake on economic activity in the short term, it is estimated that its effects will not have a sustained impact on the performance of the Turkish economy in the medium term,” the bank said in a statement.
“The (bank’s) board believes that monetary policy following this measured cut is sufficient to sustain the necessary post-earthquake recovery while preserving financial and price stability,” it added.
A prominent business group has estimated there was some $84 billion in quake damage, but estimates from other experts are more conservative, putting the total closer to $10 billion.
As many as 164,000 buildings were destroyed by the quake or left beyond repair, according to an official estimate.
When the quake hit, Turkey’s official annual inflation rate had slowed to 58 percent from a two-decade high of 85 percent last year.
But independent economists at the Inflation Research Group (ENAG) said the inflation rate was in fact as high as 121.6 percent in January, down from 137.5 percent in December.