The Turkish lira has extended its losses against the dollar to more than 20% this year after the government said it was reluctant to approve interest rate hikes by the central bank to tame inflation faster than 1998.
The pound fell 0.6% to 16.6 per dollar in Istanbul. The currency lost 44% of its value in 2021, as the central bank, acting on government orders, cut interest rates to stimulate economic growth. It kept borrowing costs unchanged at 14% this year despite accelerating annual inflation to 73.5%.
Authorities could have raised interest rates to tackle inflation, but chose to put economic growth first on the agenda, Finance Minister Nuredin Nebati told members of the ruling Justice and Development Party (AKP) at the weekend, according to an article in the paper. Hürriyet.
“We chose to grow along with inflation. Otherwise, we could have taken very drastic measures to reduce inflation. We would have raised interest rates. Production would have stopped then,” Nebati said in a presentation, Abdulkadir Selvi said.
Turkey has the highest inflation in emerging and developed markets and the most negative interest rates in the world when annual inflation is subtracted.
Analysts have warned that the government’s pro-growth economic policies, which it is pursuing in the run-up to the June 2023 elections, are unsustainable and could lead to a systemic economic crisis.
Nebati said he expects annual inflation to slow below 50% by the end of the year and to 19.9% by the end of 2023, the Milliyet newspaper reported. Earlier this year, he predicted that inflation would fall to single digits by the time of the election.
Neither interest rate hikes nor interest rate cuts are being considered in the short term, Milliyet quoted Nebati as saying.
“Nebati confirms that there is no possibility of an early rate hike. By simply confirming what we all really knew – Erdogan will not impose sanctions on interest rate hikes on this side of the election. That means the pound will be under market pressure.” said Tim Ash, senior strategic emerging market analyst at BlueBay Asset Management in London.
Petros Kranias
Source: Capital
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