Erdogan says Turkey will keep cutting interest rates, mocks British pound

Turkish President Recep Tayyip Erdogan addresses members of his ruling party, the Justice and Development Party (AKP) during a meeting in Parliament in Ankara, Turkey, May 18, 2022. Murat Cetinmuhrdar/Presidential Press Office/Branch via Reuters This photo was provided by a third party. There are no reviews. not archive. compulsory credit

Murat Steenmhordar | Reuters

Its president, Recep Tayyip Erdogan, has said Turkey will continue to cut interest rates, despite inflation rising to more than 80%.

Turkey’s central bank told CNN Turk on Wednesday evening that it will not raise interest rates, adding that it expects the country’s key interest rate, currently 12%, to reach single digits by the end of this year.

In the face of deepening economic problems, Erdogan also took the time to throw some criticism at the UK, saying the British pound had “exploded”.

The British currency recently hit a historic low against the US dollar at nearly $1.03 as the new Conservative government led by Prime Minister Liz Truss presented an economic plan – based largely on borrowing and tax cuts despite rising inflation – reeling markets.

This has prompted worrying reactions from US economists, policy makers and the International Monetary Fund, with some saying the UK is behaving like an emerging market.

Turkish LiraMeanwhile, it hit a record low of 18.549 against the dollar on Thursday. The currency has lost nearly 28% of its value against the dollar this year and 80% in the past five years as markets avoided Erdogan’s unconventional monetary policy of lowering interest rates despite high inflation.

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“Ironically, Erdogan is giving advice to Truss on the economy,” Timothy Ash, emerging markets analyst at BlueBay Asset Management, said in an email.

“Turkey has 80% inflation and I think the worst performing currency over the last decade. Lol. How far the UK has sunk.”

People browse gold jewelry in a gold shop window at the Grand Bazaar in Istanbul on May 5, 2022 in Istanbul, Turkey. Gold prices rose on Monday as the dollar hovered near recent lows, with investors focused on a key inflation reading in the US that could influence the size of the Federal Reserve’s next rate hike.

Burak Kara | Getty Images News | Getty Images

Erdogan doubled down on his controversial monetary plan on Thursday, saying he had told central bank decision makers to continue cutting interest rates at their next meeting in October.

“My biggest fight is against interest. My biggest enemy is interest. We lowered the interest rate to 12%. Is this enough? Not enough. This needs further decline,” Erdogan said at an event. Translation.

“We have discussed this matter and we are discussing it with our central bank. I have suggested the need for further decline in the upcoming MPC meetings,” he added. Turkish Central Bank It shocked the markets with consecutive cuts of 100 basis points In the past two months, as many other major economies have sought to tighten policy.

Meanwhile, the lira is set to fall further as Turkey prioritizes growth over tackling inflation, which is at its highest level in 24 years. In addition to the massive rise in the cost of living that has brought on Turkey’s population of 84 million, the country is burning its foreign exchange reserves and has a growing current account deficit.

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With the US Federal Reserve raising interest rates and the dollar getting stronger, Turkey’s many debts denominated in dollars, and the energy it imports in dollars, will become more and more painful to pay for.

“With external financing conditions tightening, risks remain heavily skewed to sharp and uncontrolled declines in the lira,” Liam Beach, a prominent emerging markets economist, wrote in a note after Turkey’s latest interest rate cut on September 22.

“Turkey’s macro background remains weak. Real interest rates are very negative, the current account deficit is widening, and short-term foreign debt is still large,” he wrote. “It may not take a major tightening of global financial conditions for investor sentiment toward risk faltering toward Turkey and adding further downward pressure on the lira.”

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