Another Monday has come, another week begins with losses for the Turkish lira on Monday, nearing a record low after the Federal Reserve said interest rates in the United States could rise for some time.
Higher US and European interest rates are reducing the attractiveness of emerging market assets such as Turkish bonds. The Fed’s tightening warnings come as Turkish President Recep Tayyip Erdogan instructs the Turkish Central Bank (TCMB) and its governor, Sahap Cavcioglu, to reduce borrowing costs ahead of elections scheduled for next June. despite rising inflation.
The lira fell 0.1 percent to 18.19 per dollar on Borsa İstanbul in Istanbul on Monday. The record low, set in December, is around 18.36 per dollar.
“Restoring price stability will likely require maintaining accommodative policy for some time,” Fed Chairman Jerome Powell said late Friday in remarks prepared for the Kansas City Fed’s annual policy forum in Jackson Hole, Wyoming. .
The pound has lost more than a quarter of its value against the dollar this year, after falling 44% in 2021.
Analysts, economists and international credit rating agencies attribute the lira’s losses to the central bank’s loose monetary policy imposed by Erdogan, who has fired three of the institution’s governors since the summer of 2019 by presidential decree. The TCMB surprised Turkey market analysts by cutting interest rates to 13% from 14% on August 18, a move that none of the analysts polled by Reuters and Refinitiv had predicted.
Inflation in Turkey has soared to 79.6% annually, partly due to the central bank’s rate-cutting moves, which began in September last year. It had kept rates on hold since December before this month’s move lower.
Erdogan says higher interest rates go against his Islamic beliefs and cause inflation instead of reducing it.
On Friday, Finance Minister Nurettin Nebati said Turkey’s economic policies would soon break the inflationary spiral, criticizing the Economist magazine for publishing an article describing the economy as “in turmoil.”
Petros Kranias
Source: Capital
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