Turkish President Tayyip Erdogan addresses members of his ruling AK Party (AKP) at the parliament in Ankara, Turkey May 18, 2022. By Murat Cetinmuhurdar/President’s Press Office/Handout Reuters This image has been supplied by a third party. No resale. There are no archives. Compulsory credit
Murat Cetinmuhurdar Reuters
Turkey will continue to cut interest rates, its president Recep Tayyip Erdogan said, despite inflation rising more than 80%.
Turkey’s central bank will not raise rates, he told CNN Turk on Wednesday night, and he expects the country’s key rate, currently 12%, to hit single digits by the end of this year.
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Addressing the economic woes, Erdogan also took time to throw some barbs at Britain, saying the British pound is “blown up.”
The UK currency recently hit a near historic low of $1.03 against the US dollar as the new Conservative government led by Prime Minister Liz Truss introduced an economic plan based on borrowing and tax cuts despite rising inflation, once again jolting the market.
This has prompted alarming reactions from US economists, policymakers and the International Monetary Fund, with some arguing that the UK is behaving like an emerging market.
Meanwhile, the Turkish lira hit a record low of 18.549 against the dollar on Thursday. The currency has lost roughly 28% against the dollar this year and 80% over the past 5 years as markets shied away from Erdogan’s unconventional monetary policy of cutting interest rates despite high inflation.
“Oh the irony, Erdogan is giving truce advice on the economy,” Timothy Ash, emerging market strategist at BlueBay Asset Management, said in an emailed note.
“Turkey has 80% inflation and I think the worst performing currency in the last decade. Lol. How low the UK has sunk.”
People browse through the window of a gold shop in Istanbul’s Grand Bazaar on May 05, 2022 in Istanbul, Turkey. Gold prices lifted on Monday as the dollar slipped from recent lows, with investors focusing on key US inflation readings as it could affect the size of the Federal Reserve’s next interest-rate hike.
Burak Cara | Getty Images News | Getty Images
Erdogan doubled down on his controversial monetary plan on Thursday, saying he had asked central bank policymakers to continue cutting rates at their next meeting in October.
“My biggest fight is against interest. My biggest enemy is interest. We have lowered the interest rate to 12%. Is it enough? It is not enough. It needs to come down further,” Erdogan said during an event, according to Reuters. . Translation
“We have discussed it with our central bank, are discussing it. I have suggested the need to come down further in the upcoming monetary policy committee meeting,” he added. Turkey’s central bank has shocked markets with two consecutive 100 basis point cuts in the past two months, as several other major economies seek to tighten policy.
Meanwhile, the lira is set to fall further as Turkey prioritizes growth to combat inflation, which is at a 24-year high. In addition to the skyrocketing cost of living on Turkey’s 84 million population, this has left the country burning through its foreign exchange reserves and widening its current account deficit.
As the US Federal Reserve raises its interest rates and the dollar strengthens, paying off many of Turkey’s dollar-denominated debts and the energy it imports in dollars will become more painful.
“As external financing conditions tighten, risks have shifted to a sharp and erratic decline in the lira,” Liam Peach, senior emerging markets economist, wrote in a note on Sept. 22 after Turkey’s last rate cut.
“The macro backdrop in Turkey remains poor. Real interest rates are seriously negative, the current account deficit is widening and short-term external debt is large,” he wrote. “There may not be significant tightening in global economic conditions to sour investor risk sentiment towards Turkey and add further downward pressure on the lira.”