LAST UPDATE: 16:20
The Turkish pound is falling freely after Recep Tayyip Erdogan’s statements against high interest rates shortly before the central bank’s decisions on Thursday, in which the Turkish president “showed” a new reduction in interest rates despite the rally of inflation.
The currency is losing 2.5% at the moment at 10.6098 per dollar, remaining in a negative trajectory for the seventh day. Since the beginning of the month the pound has lost more than 10% in the worst performance among emerging markets.
Analysts expect Turkey’s central bank to cut interest rates by another 100 basis points tomorrow, pushing real yields deeper into negative territory. The central bank cut interest rates by 300 bp. to 16% in the past two months despite the inflation rally in the country and indications that central banks in Europe and the US are moving to prepare for the tightening of their policy.
Turkey’s central bank is easing its policy following the instructions of Turkish President Recep Tayyip Erdogan, who, contrary to classical economic theory, believes that higher interest rates also lead to higher inflation.
The head of the Turkish state reaffirmed today, once again, his desire to see his country’s central bank reduce interest rates further.
“I can not be in the same camp as those defending high interest rates,” he said, speaking from the National Assembly building in Ankara, according to Bloomberg. The Turkish head of state reiterated his view that what is considered orthodox from an economic point of view is that high interest rates fuel and do not fight inflation.
The rise of the US dollar as the Federal Reserve prepares for a historic turn in its policy, restricting bond markets in order to pave the way for a rate hike from next year, has contributed to the pound falling to new all-time lows below the psychological level of 10 / dollar. Since the beginning of the year the pound has lost almost a third of its value.