The Turkish lira plunged to new lows as investors prepared for another interest rate cut by the country’s central bank on Thursday, despite inflation already dominating the economy as a whole.
Since the bank started to cut interest rates in September under the order of President Recep Tayyip Erdogan, the currency has fallen by more than 40% against the U.S. dollar, and it has traded against the U.S. dollar in early London trading. The exchange rate reached 15.2 lire.
Erdogan is a staunch opponent of high interest rates. He insisted that the central bank cut interest rates repeatedly, even if inflation soars to more than 21% of the official interest rate, and Turkish Lira Has entered a state of free fall. He tried to argue that cheap currencies will eventually stabilize prices by promoting exports, investment and employment.
The central bank expects on Thursday Lower interest rates A poll conducted by Reuters showed that this proportion dropped by 1 percentage point to 14%. Until September, when Governor Sahap Kavc?oglu began an aggressive reduction cycle, the weekly repo rate remained as high as 19%. At the beginning of September, the exchange rate of the lira to the U.S. dollar was about 8.
Economists say that cutting interest rates at a time when inflation is so intense is an unprecedented economic experiment, which is likely to cause inflation to run out of control and further erode the living standards of the population already suffering from increased poverty.
“If it weren’t for the suffering and suffering of 84 million people, it would be a fascinating economic experiment,” said Reft Gurkaynak, an economics professor at Bilkent University in Ankara.
“This shows that economists are actually very familiar with the fundamentals of monetary policy. We know this will be the result – and it is true.”
Erdogan’s ruling party has been eroded in opinion polls amid economic turmoil and is expected to announce a substantial increase in the minimum wage on Thursday to offset the impact of currency devaluation on the public. Pro-government media reported that the expected increase is about 35% to 40%.
The President of Turkey appointed a new finance minister after the resignation of his former economic chief earlier this month and announced a further reorganization of the economic team earlier Thursday.
According to a decree issued in the official gazette, he dismissed two deputy finance ministers Sakir Erkan Gour and Mohamed Hamdi Yildirim.
He replaced it with bureaucrats Yunus Elitas and Mahmut Gurcan. Gurcan is a former ruling party official, he is like his family Nordin NabatiThe new Minister of Finance also has the textile industry.