Turkish lira hits new low after Erdogan says price cuts wanted

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ISTANBUL, June 2 (Reuters) – President Tayyip Erdogan despatched Turkey’s lira foreign money to new all-time lows on Wednesday after he known as for rate of interest cuts within the subsequent two months and mentioned he spoke to the central financial institution’s new governor about it.

The lira – by far the worst performer in rising markets this yr largely as a consequence of perceived political interference in coverage – fell by some 4% in skinny early commerce to eight.88 versus the greenback earlier than rebounding.

“I am behind the same claim on this issue – I even spoke to the central bank governor today – we certainly need to lower interest rates,” Erdogan advised a televised interview with state broadcaster TRT Haber late on Tuesday.

“For that, we need to see July, August for interest rates to start coming down,” he mentioned, including that decreasing rates of interest would raise the burden on investments.

Erdogan’s frequent requires decrease borrowing prices and his abrupt elimination of three central financial institution chiefs in lower than two years has eroded Turkey’s financial credibility and left it extra susceptible to excessive inflation and monetary disaster.

The foreign money was at 8.63 in opposition to the greenback at 0527 GMT.

It has misplaced 16% since mid-March when Erdogan, a self-described “enemy of interest rates”, ousted a hawkish and well-respected central financial institution chief and put in a like-minded critic of tight coverage.

New financial institution Governor Sahap Kavcioglu has since saved the coverage price regular at 19% although analysts anticipate a reduce within the third quarter. Inflation has risen above 17% and the foreign money depreciation provides worth stress through Turkey’s heavy imports.

Central financial institution leaders are set to carry calls with buyers in a while Wednesday to debate coverage and financial prospects.

“This late night intervention by Erdogan talking about rate cuts is clearly unhelpful for Kavcioglu heading into his investor calls,” mentioned one overseas investor.

The foreign money was battered once more final week on issues over world inflation and an early election in Turkey.

Turkey, which depends on overseas foreign money earnings from tourism to shore up its present account deficit, dangers one other misplaced season this yr as a number of international locations imposed restrictions on journey because of the excessive variety of COVID-19 instances.

“Prospects of central bank interest rate cuts are unfortunately causing Turkish Lira to fall sharply,” Robin Brooks, chief economist on the Institute of Worldwide Finance, mentioned on Twitter.

“This fall in the lira means tighter financial conditions and weaker growth.”

Enhancing by Jonathan Spicer


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Jonathan Spicer

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