His frequent calls for rate cuts and the removal of three central bank chiefs have put Turkey under further financial stress.
President Recep Tayyip Erdogan has sent Turkey’s lira to a new all-time low after calling for interest rate cuts over the next two months and said he had spoken to the new central bank governor.
Erdogan said in a televised interview with state broadcaster TRT Haber late Tuesday, “I’m behind the same claim on this issue – I also spoke to the governor of the central bank today – we definitely need to lower interest rates.” Needed.” “For this, we need to see July, August to start reducing interest rates,” he said, adding that reducing interest rates would ease the burden on investments.
The Turkish leader’s remarks were part of a longer explanation of his unconventional belief that lower borrowing costs would help slow inflation, as do most central bankers around the world. Erdogan said a cut in interest rates would lower costs for producers and eventually lead to a slower rise in consumer prices.
“If we remove the burden of interest rates from investments and costs, we will enter a calmer environment because it is interest rates that cause cost inflation”, Erdogan said.
Erdogan’s repeated lowering of borrowing costs and the removal of three central bank chiefs in less than two years has eroded Turkey’s monetary credibility and made it more vulnerable to high inflation and financial distress.
The currency was at 8.63 against the dollar at 05:27 GMT on Wednesday.
It has fallen 16 percent since mid-March, when Erdogan, a self-described “interest rate foe,” removed a stern and respected central bank chief and installed a like-minded critic of the tough policy.
The new bank’s governor, Sahup Kavioglu, has since kept the policy rate steady at 19 percent, although analysts expect a cut in the third quarter. Inflation has risen above 17 percent and currency depreciation adds to price pressures through heavy imports from Turkey.
Central bank leaders are set to call with investors later on Wednesday to discuss policy and economic prospects.
“This late-night intervention by Erdogan about a rate cut is clearly unhelpful for Kavcioglu to go into his investor call,” said a foreign investor.
The currency again turned bad last week on concerns about global inflation and an early election in Turkey.
Turkey, which relies on foreign exchange earnings from tourism to bridge its current account deficit, risks another lost season this year as several countries have stopped travel due to the high number of COVID-19 cases. has been banned.
Robin Brooks, chief economist at the Institute of International Finance, said on Twitter: “The prospects for a central bank interest rate cut are unfortunately causing the Turkish lira to fall sharply.” “This fall in the lira means dire financial conditions and weak growth.”
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