Turkey under pressure to raise interest rates

[paul90]

From Guardian newspaper 8 August 2018:

Turkey under pressure to raise interest rates as economic crisis looms

Turkey is facing mounting pressure to announce an emergency rise in interest rates as rampant inflation, a plunging currency and American sanctions pushes one of the world’s key emerging market countries to the brink of crisis.

Analysts said Turkey’s central bank would have no choice but to increase borrowing costs aggressively in the coming days to stem the fall in the lira, which is down by almost a third against the US dollar in the past 12 months and hit a record low this week.

The currency’s weakness has been exacerbated by the increasing tendency of Turkey’s president, Recep Tayyip Erdoğan, to interfere in the conduct of monetary policy by opposing the use of higher interest rates to cool an overheating economy.

This week’s turbulence was triggered by news that the Trump administration was considering removing Turkey’s eligibility for preferential trade treatment in protest at their imprisonment of the US pastor Andrew Brunson. The threatened loss of duty-free access to the world’s biggest market for Turkish exports would further weaken the lira by removing a crucial source of dollar inflow.

Washington has already announced asset freezes and travel bans on two Turkish ministers in an attempt to secure the release of Brunson, who is facing accusations of espionage for Kurdish insurgents and the movement of Fethullah Gülen, a US-based preacher believed to have orchestrated a coup attempt in 2016.

American officials say the charges against Brunson are false and as 10-year borrowing costs hit a record level of more than 20% on Tuesday, Ankara announced that it was sending a mission to Washington to seek a diplomatic solution to the row between the two Nato countries.

But William Jackson, chief emerging markets economist at Capital Economics, said swift action by the central bank now looked unavoidable.

Jackson said the Turkish central bank had been expected to increase a key interest rate by 2 percentage points over the coming months but it was now looking increasingly likely that this would now come in just a few days.

“However, the lira’s fall is being amplified by concerns that the central bank will not act to shore up the currency. The fact that the MPC [Monetary Policy Committee] kept interest rates unchanged at its meeting in late July, despite the rise in inflation to a 15-year high, suggested that the government is influencing monetary policy.”

The lira hit a record low of 5.425 against the dollar on Monday, a 5.5% drop in a single day, before recovering somewhat to 5.27 on Tuesday afternoon, after reports of the Turkish delegation’s Washington visit. Monday’s drop was the lira’s worst single-day slide in ten years.

The US sanctions have exacerbated a currency crisis that was already hurting Turkish consumers and businesses with loans in foreign currencies. Investors were already concerned over the country’s widening current account deficit and high foreign debt even before Erdoğan demonstrated his desire to influence economic policy by appointing his son-in-law, Berat Albayrak, as treasury and finance minister.

The central bank raised borrowing costs to support the lira in May, but after the recent election Erdoğan – a self-styled enemy of interest rates – assumed new executive powers that investors fear will compromise its independence. The president wants lower borrowing costs to fuel credit growth and economic expansion, even though inflation is running at more than 15%.

[Reyntj]

Lets face it the turkish economy is stuffed if there was political will they could potentially avoid a hard landing . Erdogans wants spending on massive infrastructure and low interest rates to boost growth but its not going to happen.

Thers a heavy propaganda campaign going on now in turkey to turn the population against the us as thats who erdogan wants to blame for the economic mess . They had a deal to avoid the recent sanctions and return the pastor . turkey came up with miore demads perhaps to sabotage it? . This pastor issue is unlikely to get resolved in my opinion as they want to blame evrything on the usa.

Thers no economic reason why the central bank havent increased interest rates surely they have been interfered with.

[13roman58]

Close the US base in southern Turkey that would start a panic within the western world.mainly Trump,s America.

[David]

Is Erdogan worried about the economy seems to be only interested in the country becoming more Islamic rather than anything else

[EnjoyingTheSun]

Is Erdogan worried about the economy seems to be only interested in the country becoming more Islamic rather than anything else

I guess its down to populism, if going more Islamist gets votes then that's the way to go but food in people's bellys is usually the biggest vote grabber.

[frugal90]

https://www.bloomberg.com/news/articles ... estec-says

what happens next?

[Chriswright03]

I see the TL has just reached 7.04!

[David]

Serious financial crisis on the way

[Hedge-fund]

https://www.bloomberg.com/news/articles ... estec-says

what happens next?

If the economy was being run by professionals we would see a 5% interest rate rise immediately followed by publication of a detailed plan to deal with the structural imbalances affecting Turkey.

As the economy is being run by erodogan anything could happen - and to be honest I don't think he has a clue what to do. He could raise rates, try to calm the markets and re-engage politically or he could come out fighting, blame foreign influences and impose capital controls.

The warning signs were there a few years ago and the sensible money got out. What we are seeing now is panic, capitulation and liquidating of positions at any price.

[Reyntj]

My take on it is erdogan knows exactly whats going on thats why he called the election early . The economy was going to take a hit whatever he just doesnt want to get blamed for it . A recent survey in turkey resulted in 65 % of turks believe america is causing the fall in lira and thers a western conspiracy which is no surprise as a the majority if press is controlled by the state niw and this is what they have been peddling . If you read the local press orwatch the news theres radio silence on the tl . Everythings great ! Tourism on the up ! Everyone has internet and fridges ! Low inflation and low interest rates just round the corner.

Erdogan will let usa take the blame for the inevitable economic crisis that is now my mind already started and now irreversible.

[frugal90]

https://www.ft.com/content/914e3be8-9bc ... 54c65a4465

From th FT

[Keithcaley]

https://www.ft.com/content/914e3be8-9bc ... 54c65a4465

From th FT

That link just takes me to the 'subscription ' page.

Could you sumarise what the FT said please?

[David]

Hedge-fund .....Spot on with your comments but that is what happens when the country is run by a dictator and a despot.

[Reyntj]

The turkish news has become embarrassing news on digiturk thers english trt and anther channel called news. This morning the tl fell as mch as 12 % ! Theres not a whisper of it in the news ! Just message like the turkish banking system is very strong . This is wha5thappens when a state controls all the media. The people of turkey will pay dearly economically for the poor way the economy is being run . Thers is onky so long the news can keep sayng everythings great when it is anything but.

[OldOwl]

7,50 to the TL now!

[David]

Will it go to 8 next week will Erdogan listen or will he think that he knows best as always and see the country in turmoil

[suecheshireuk]

It hit 8 at 09.15.

[EnjoyingTheSun]

It hit 8 at 09.15.

Not seeing 8, I saw a high of 7.7481

[jofra]

According to this site. a high of 8.45440 at 13:40 UTC.....

[EnjoyingTheSun]

According to this site. a high of 8.45440 at 13:40 UTC.....

Yep saw that, amazing what happens when you put the kettle on