US News Turkish central bank lowers key interest rate radical than expected

17:35  21 october  2021
17:35  21 october  2021 Source:   tagesspiegel.de

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Despite a very high inflation rate, Turkish central bank has drastically reduced its key interest rate. She apparently gives the pressure of President Recep Tayyip Erdogan.

Trotz der hohen Inflationsrate hat die türkische Notenbank ihren Leitzins drastisch gesenkt. © Karl-Josef Hildenbrand / DPA Despite the high inflation rate, Turkish central bank has drastically lowered its key interest rate.

, contrary to the general teaching, believes that the country's suffering from high inflation can be cranked with lower interest rates. As the central bank now announced on Thursday in Ankara, the key interest rate is reduced by 2.0 percentage points to 16.0 percent. Economists had only expected a reduction to 17 percent in section.

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Lira at record low

The Turkish Lira was significantly under pressure and fell to the US dollar and to the euro at record low. Turkish Lira has gained a dollar by more than 20 percent this year. The euro rose for the first time on more than 11 lira. The courses of Turkish government bonds were strongly pressurized. The Turkish stock markets turned to the minus.

After the interest rate cut, the key interest rate is even more clearly below the high inflation rate. This had been at 19.58 percent in September. Thus, the realzin, ie the key interest rate minus inflation, negative.

economists agree that the current situation speaks more for interest rate hikes. Investments in Turkish assets are now even more unattractive for investors. This also puts the Turkish currency under pressure. The weak lira also heats inflation, as imported goods become more expensive.

President Erdogan had recently released three central bankers, with whose monetary policy he did not agree. The current central bank boss Sahap Kavcioglu has only been in office since March, after the predecessor Naci Agbal was released due to interest rate hikes. Kavcioglu has now been the fourth central bank chief since 2019. All its predecessors had ultimately fallen in disgrace, because they did not support the course of a loose monetary policy preferred by Erdogan.

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This is interesting!