Erdogan advises central bank to cut rates at upcoming meetings
Turkish President Tayyip Erdogan said on Thursday he had advised the central bank to lower its policy rate at its upcoming meetings, a day after saying he expects interest rates to come down to single digits by year-end.
Turkey’s central bank cut its policy rate by 200 basis points to 12% in the last two months, delivering shocks to markets after inflation surged to 80% in August.
The rate cuts are part of Erdogan’s unorthodox policy of lowering rates to lower inflation. An easing cycle at the end of last year sparked a currency crisis stoking inflation, which is now at 24-year highs.
Speaking at the general assembly of a merchants’ confederation, Erdogan repeated his unorthodox view that lower rates will lead to lower inflation.
“My biggest battle is against interest. My biggest enemy is interest. We lowered the interest rate to 12%. Is that enough? It is not enough. This needs to come down further,” he said.
“We have discussed, are discussing this with our central bank. I suggested the need for this to come down further in upcoming monetary policy committee meetings,” Erdogan added.
On Wednesday, Erdogan said interest rates will come down to single digits by year-end, despite a global tightening cycle, an ailing currency and soaring energy prices.
Turkey’s lira, which hit its record low of 18.55 against the dollar on Thursday, fell some 29% this year on top of a 44% fall last year on concerns over unorthodox economic policies.
The currency has been less reactive to similar comments from Erdogan than in the past, largely due to the central bank adopting a more dominant role in the forex market since December.
Ipek Ozkardeskaya, senior analyst at Swissquote, said the lira is not as weak as it should be thanks to the central bank’s role in the forex market.
“The Turkish central bank is trying to weather the sell-off and the downside pressure but obviously there is only so much that they can do when the global winds are flowing so violently against the lira,” she said.
“This whole thing is a time bomb.” [Reuters]
