The Turkish lira continued to dive today (Thursday) ahead of the country’s central bank meeting, with President Recep Tayyip Erdogan already speaking out several times and saying he would continue to fight for interest rate cuts, arguing that high interest rates are the ones encouraging inflation. The Monetary Committee lowered the interest rate by 100 basis points and now stands at 15%.
The pound is now weakening to the level of 10.7 pounds to the dollar. It has already lost over 5% in the last two days and has erased over 30% from this year’s campaign. Earlier today the currency fell to a record low of 10.98 pounds against the dollar, but since then the declines have moderated.
Turkish President Erdogan / Photo: Shutterstock, Mr. Claret Red
Erdogan has previously said that interest rates are “the devil” and that lower rates will reduce inflation, in direct contrast to what most economists believe. In October, inflation in Turkey rose by 20% in October. But since September, the central bank has lowered interest rates by 400 percentage points (including today’s reduction), and the governor has signaled that further reductions are expected.
About three weeks ago, the Turkish lira fell 1.6 percent against the dollar after Erdogan ordered the expulsion of 10 ambassadors, including the US ambassador, after calling for the release of Osman Kwala, a businessman and philanthropist who opposes Erdogan’s rule.
One month ago, the central bank cut interest rates by 200 basis points (to 16%) – twice as much as expected – despite the deterioration in the inflation forecast. One week before this interest rate decision, Erdogan fired three members of the Monetary Policy Committee, two of whom opposed lowering interest rates, which allowed him to implement further relief.