Ankara : , The Turkish central banking lowered its interest rates for the third consecutive month in spite of high inflation.This caused the Turkish national currency, the lira, to plummet to historic lows against US dollars.At a crucial meeting, the Monetary Policy Committee of the bank determined to reduce the benchmark rate of interest to 15% with a reduction of 100 basis points.
According to Xinhua, the bank previously lowered its rates by 300 basis points in August in accordance with Turkey’s President Recep Takyip Erdogan’s belief that higher interest rates lead to higher prices.
Erdogan reiterated in Parliament on Wednesday his opposition to high interest rates.He vowed that he would fight it “until death do us part.” Erdogan also pledged to support low-income people in an era of increasing living costs.
The MPC cut rate decision led to the Turkish lira falling to an all-time low of 11.2 against a greenback.
On Tuesday the lira experienced one of its largest falls in the past year.It lost about 4% against the dollar and was trading at 10.45 dollars, just four days after passing the psychological mark of 10.00 per dollar.
Turkey is one of most at-risk emerging markets due to its large short-term foreign debt and weak currency reserves.
This makes it vulnerable to stricter financing terms.
Mustafa Sonmez, an independent economist, stated to Xinhua that Turkey must repay external debts of $167 billion over the next 12 months.Therefore, it will need foreign currency.In this context, the lira won’t be returning to its former levels.”
Analysts warned that many large companies may have Euro- or Dollar-denominated loan obligations.This could lead to problems in the future due to the Turkish currency’s devaluation.
Inflation is currently at less than 20 percent annually.This is the fastest rate for years.
It is leading to price rises which, in turn, results in increased costs of imports, fuel, and basic household items, all which now cost much more.
Enver Erkan is the Chief Economist of Istanbul’s Tera Securities.
He stated that with winter approaching, Turkey’s oil and natural gas prices have risen, which will also increase its energy costs.
In a note addressed to investors, Erkan stated that rising energy costs will lead to higher inflation which in turn would create a vicious cycle for homeowners.
Erdogan ruled Turkey for 19 years, offering economic stability until the 2018 currency crisis.This led to high inflation and high unemployment.
Since 2021, the lira lost 30% of its value.The US Federal Reserve is expected to raise interest rates earlier than anticipated, putting further pressure on the lira.
Hamit Tekin, a young worker in Ankara’s Hilal neighborhood told Xinhua he has been busy updating the price tags of food products over the past few days due to successive price increases.
It’s my job.But for clients it is a real burden.He said that consumers complain about rising prices and difficulties in making ends meet.
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