The Turkish lira recorded one of the largest falls of the year amid speculations that the central bank intends to cut its main interest rate despite rising inflation.
Inflation continued to accelerate and last month hit 19.25% at an annual rate. This is the highest rate in two years, which exceeds the interest rate The bank’s benchmark of 19%.
The central bank has been promising for months to keep interest rates positive in So that Turks do not feel motivated to spend money instead of depositing it in their accounts.
This requires raising the benchmark interest rate to 19.5% at the next monetary policy meeting on 23 September.
But central bank governor Şehab Cavusoglu told investors that consumer prices are expected to fall in the coming months and that the bank will adopt a key inflation rate, which is below 17% after excluding volatile items such as food and fuel, in the decisions future.
THE media Turks quoted Kavucioglu as saying that “exceptional circumstances that emerged as a result of the pandemic have increased the importance of the main inflation indicators”.
He added: “In determining the position of global monetary policy, basic indicators are taken as a basis, with the exception of temporary factors arising from sectors outside the sphere of influence of monetary policy.”
The Turkish overnight rate fell 1.5% against the US dollar and was trading around 8:45 am Wednesday afternoon.
The Turkish central bank is in independent principle, but is under constant pressure from President Recep Tayyip Erdogan to cut interest rates.
The Turkish president has sacked three bank governors since 2019 because they were raising the cost of borrowing or not lowering it fast enough.
Raising the interest rate is one of the main tools of monetary policy to fight inflation, but Erdogan strongly opposes it and sees it as a brake on growth.
Contrary to classic economic theories, Erdogan sees higher interest rates as the power of higher prices.
Cavusoglu kept the reference interest rate unchanged for five months e in previously it had promised to focus on fighting inflation.
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