Turkey’s central bank cut its key interest rate from 13% to 12%, causing the Turkish lira to fall to a record low against the backdrop of colossal inflation in the country. Experts are puzzled by such decisions of the Turkish financial authorities.

Turkish lira hits record low amid key rate cut

This is the second decrease in the key rate after a long period of stagnation (from December 2021 it remained unchanged until August), Interfax recalls.

The bank’s management says that due to record inflation, which reached 80.2% in annual terms in August (the highest since 1998), it is necessary to reduce the key rate to stimulate the economy and consumer demand.

But such a decision caused a record fall in the national currency: the lira fell by 0.3% and reached an all-time low (18.4 lira per $1). And experts are sure that is not the limit.

“Since the beginning of the year, the value of the dollar against the Turkish lira has grown by 36.43% and, were it not for the all-time high, the growth would continue now. However, the regulator’s own actions indicate that this is not yet the limit, the lira’s all-time low will soon be rewritten,” Vladimir Chernov, an analyst at Freedom Finance Global, said in a press release.

The analyst is surprised by the fact that the actions of the Turkish regulator are absolutely opposite to those of other world central banks in the fight against inflation: in such a situation, they simply increase rates.

A similar policy of the Central Bank of Turkey led to a slight reduction in the cost of loans (for the whole year by 2%) against the background of a doubling of prices. And Chernov believes that a 2% rate cut “will not be able to equalize” a doubling of costs and, consequently, both GDP and demand will fall and prices will continue to rise.

The analyst is sure that the monetary policy of the Central Bank of Turkey can cripple the country’s economy:

“There is little doubt that in September inflation will increase by another 1-2% after today’s actions by the Central Bank and in this context, the Turkish lira will start to draw new lows.”

Author:

Ekaterina Alipova

Source: RB

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