© Reuters
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The pound hit a new low after the Turkish central bank expected slow down the leading interest rate with another 100 points.
Thus, the interest rate cut is a total of 500 points (5 points) since the beginning of the year – from 19 to 14% – and the Anatolian Agency describes it as coinciding with “market expectations”.
However, the policy of low interest rates, with which Turkish President Recep Tayyip Erdogan believes (contrary to most economists) that he is fighting inflation, not only does not reduce prices, but also pushes the pound to record lows, which were unthinkable only a month and a half ago. .
Data on inflation and the collapse of Turkish purchasing power so far do not confirm Erdogan’s hypothesis, but at the end of last week due to economic policy trade unions staged their first protests in Istanbul.
This comes at a time when, within 12 hours, central banks in two leading economies, the United States and the United Kingdom, maintained and increased their leading interest rates, respectively. In the US case, the Federal Reserve has announced that there will probably be three interest rate hikes in 2022. The Bank of England was the first major Western country to take such a step this year to fight inflation; moreover, it had not raised the key interest rate for 3 years. Minutes after the publication of the original version of this article, the European Central Bank also decided, like the Fed, to keep interest rates unchanged.
Border after border
The subsequent decision crossed the 15-dollar mark and the Turkish currency lost 5% of its value in hours. A while ago she did traded for 15.45 per dollar (minutes after the decision of the central bank was even 15.68). Only a month ago she crossed the threshold of 10.
Due to the policy since the beginning of autumn, the pound has lost half of its value against the dollar. Last month’s inflation was 20.7%, although some experts questioned the statistics as low.
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Despite crossing unprecedented thresholds in the value of the Erdogan pound insists that the weak Turkish currency is good for exports and job creation. Indicators such as annual gross domestic product growth remain good at 7.4% on a quarterly basis between July and September, but economists warn that with rising inflation, an approach with incentives for exports, business access to cheap credit and employment could turn around.
“I am worried about the prospect of inflation in the next two to three months as it is fueled by the sharp weakening of the pound … inflation will definitely exceed 30%.”
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analyst from Danske Bank, before Reuters
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However, overheating and inflation are worrying some experts, and markets are reacting with a blow to the exchange rate over concerns that central bank policies – in theory independent, in fact fully compliant with Erdogan – are not doing enough to curb inflation (for example, they could raise interest).
New changes in the Ministry of Finance
Tonight, Erdogan fired two deputy finance ministers by decree. The midnight decision, published in the state newspaper, followed parting ways with President Lutfi Elvan, who does not share his views as Minister of Finance. In his place came the owner of a textile company, Nuredin Nebati. From the same sector (but with 15 years of experience in the institution) is one of the new Deputy Ministers of Finance, Mahmut Gurcan.
According to c. “Republic” Elvan is offered a position on Turkey’s economic policy, but no details have been released. The newspaper said the job offer was prompted by Erdogan’s attempt to keep him away from former Deputy Prime Minister Ali Babacan’s DEVA party, which has gained strength in recent months. The detained analyst and former military man Metin Gurjan, suspected by Ankara of espionage, was also from DEVA.
More on the link between the collapse of the pound and the decline in Erdogan’s popularity read here.
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