Turkish central bank cuts a key rate after attempted coup

ANKARA, Turkey – Turkey's central bank cut a key interest rate Tuesday, days after an attempted coup triggered concerns over the country's economic outlook.

In a statement Tuesday, the bank's Monetary Policy Committee said it has reduced its overnight marginal funding rate from 9 percent to 8.75 percent. All other interest rates were left unchanged, including the borrowing rate, which was left at 7.25 percent.

The cut in the marginal rate is intended to shore up liquidity in the economy amid market concerns over the impact of Friday's attempted coup.

Aside from a comment that "domestic developments have led to fluctuations in financial markets," the rate-setting body didn't mention the coup directly.

However, it sought to downplay worries, arguing that recent policy and liquidity measures "have increased the resilience of the economy against shocks."

There's been a lot of volatility in Turkish financial assets since the coup. Despite a modest rally Tuesday, Turkish stocks are still way down from pre-coup levels as is the Turkish lira.

After the central bank decision, the lira was up slightly against the dollar, which traded 0.2 percent lower at 2.9740 lira. But the Turkish currency is still far weaker than before the coup, when it was worth 2.8900 per dollar.

The attempted coup and the subsequent tough response by the government have reinforced concerns over toxic political divisions in Turkey.

A major worry is that international investors, who are badly needed for Turkey to meet its external financial obligations, will take fright. The same applies to those planning to holiday in Turkey — tourism is a key sector and foreign-currency earner for Turkey. Tourist numbers this year, particularly from Europe, were already before the attempted coup expected to be sharply lower as a result of a series of attacks in the country over the past few months.

Before a full assessment of the impact of the attempted coup, most economic forecasters had penciled in Turkish growth of around 4 percent this year.

Fitch and Moody's Investors Services have already warned about the possibility of downgrading their ratings on Turkey in light of the attempted coup. Moody's said there's now a "likelihood of a weakening in medium term growth prospects."