Jakarta, CNBC Indonesia – Last Thursday, many central banks in various countries announced their monetary policies. The majority raised inflation as the main issue, the central bank of the United States (US) or known as the Federal Reserve (The Fed) was the main concern. Understandably, the Fed is the most important central bank powerful in the world, his decisions could affect global financial markets.
Fortunately, the market welcomed the Fed’s decision, because it was in line with predictions. The Fed is accelerating the pace of tapering and is projecting three more rate hikes next year.
This policy was taken because of very high inflation and the strong United States economy.
In contrast to the Fed and other central banks which raise interest rates to reduce inflation, the Turkish central bank (TCMB) is aggressive in cutting interest rates when inflation is super high. As a result, the Turkish lira declined and continued to record the weakest in history.
“If we look at where the lira is right now that’s crazy, but it’s a reflection of Turkey’s crazy monetary policy,” said Tim Ash, emerging market strategist at Bluebat Asset Management in a note. CNBC International, Tuesday (11/23).
Inflation in Turkey in November reached 21.31% year-on-year (yoy) rose from 19.89% (yoy) the previous month and became the highest in the last 3 years. The fall in the lira exchange rate is one of the triggers for high inflation.
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Although the lira exchange rate continues to decline, yesterday TCMB again cut its benchmark interest rate by 100 basis points to 14%. The lira fell nearly 6% against the US dollar and once again hit a record low of 15,736/US$. So far this year, the lira has fallen 52% and has become the worst currency in the world.
So far, the TCMB, led by Sahap Kavcioglu, has cut interest rates for the fourth month in a row for a total of 500 basis points.
Not without reason TCMB aggressively cut interest rates. The policy stems from President Recep Tayyip Erdogan’s view that high interest rates are “the culprit of the devil”. Erdoan believes that high interest rates will only exacerbate inflation.
TCMB also “as long as you are happy” and cut interest rates aggressively. Because, if the TCMB’s policy differs from Erdogan’s view, the governor will be fired.
After cutting interest rates for the fourth month in a row, TCMB indicated that it was temporarily pausing this period, and looking at the impact in the next three months.
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