Monetary policy anxiety intensifies Turkish lira to new lows
The Turkish lira fell to historical lows and the exchange rate fell below 14 against the U.S. dollar as investors prepared for President Recep Tayyip Erdogan to push for another rate cut later this week. Although inflation is severe.
Since Erdogan ordered the central bank to start the interest rate cut cycle in September, the currency has fallen by about 40%, crossing the threshold that the authorities previously seemed unwilling to tolerate on Monday.
In London trading on Monday, the exchange rate of the lira against the US dollar fell 5% to 14.62, and then rebounded to around 14 lire. The currency will be approximately TL7 at the beginning of 2021.
After Erdogan’s increasingly unorthodox approach to managing Turkey’s $795 billion economy led to the rating agency Standard & Poor’s downgrading the country’s outlook to negative last weekend, it sold again, implying its rating on Turkey’s sovereign debt. It may be further downgraded to junk-class territories.
Standard & Poor’s stated: “The negative outlook reflects our belief that the risks faced by Turkey’s external leveraged economy in the next 12 months will rise due to extreme currency fluctuations and rising inflation, and policy signals are also uneven.”
Erdogan is a staunch opponent of high interest rates and has announced in recent weeks that he is seeking to implement a new economic model for his country of 83 million people.
go through Reduction rateHe believes that the country will benefit from a competitive currency, which will promote exports, attract foreign direct investment and create jobs.
According to official data, economists warn that this will come at the cost of increasing inflation, which has grown at an annual growth rate of 21% last month, and Reach the standard of living.
In a country that relies heavily on foreign financing to maintain economic development, it also faces the risk of financial instability.
U.S. investment bank Goldman Sachs said the need to raise interest rates rather than cut interest rates this month is “more urgent” because it believes current methods are “unsustainable.”
“Nevertheless, the authorities appear to be committed to maintaining a low interest rate policy,” it added.
The consensus of analysts is that the central bank will cut the benchmark lending rate by 1 percentage point to 14% on Thursday.
Despite this, the central bank’s decision this month to resume its policy of seeking to defend the lira has led some analysts to question whether Erdogan may have reached his tolerance for currency weakness — and whether he may allow interest rates to be suspended — cutting the cycle.
On Monday, the Central Bank of Turkey announced its fourth intervention in the currency market so far. In decemberAccording to Barclays Bank, the bank has sold an estimated US$2 billion to US$3 billion on the first three occasions. The UK-based bank said there is “great uncertainty” about interest rate decisions this week and the next few months.
However, a senior Turkish official sent a signal that Ankara is committed to advancing its controversial practices.
According to an article published on Sunday by columnist Abdulkadir Selvi, the new Finance Minister Nureddin Nebati told business representatives at a closed-door meeting last week , The interest rate cut policy “will not look back.” It is considered to have a close relationship with the government.
Nebati, who is Erdogan Appointment Two weeks ago, after his predecessor resigned, it was reported that the authorities did not want Turkey to enter an “interest rate spiral.”