Turkish lira hits new low after Erdogan says rate cuts needed

Publish June 2, 2021

The lira fell by some 4 percent in thin early trade to 8.88 versus the dollar before rebounding

ISTANBUL: President Tayyip Erdogan sent Turkey’s lira currency to new all-time lows on Wednesday after he called for interest rate cuts in the next two months and said he spoke to the central bank’s new governor about it.
The lira — by far the worst performer in emerging markets this year in large part due to perceived political interference in policy — fell by some 4 percent in thin early trade to 8.88 versus the dollar before 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 told 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 said, adding that lowering interest rates would lift the burden on investments.
Erdogan’s frequent calls for lower borrowing costs and his abrupt removal of three central bank chiefs in less than two years has eroded Turkey’s monetary credibility and left it more vulnerable to high inflation and financial crisis.
The currency was at 8.63 against the dollar at 0527 GMT.
It has lost 16 percent since mid-March when Erdogan, a self-described “enemy of interest rates,” ousted a hawkish and well-respected central bank chief and installed a like-minded critic of tight policy.
New bank Governor Sahap Kavcioglu has since kept the policy rate steady at 19 percent though analysts expect a cut in the third quarter. Inflation has risen above 17 percent and the currency depreciation adds price pressure via Turkey’s heavy imports.
Central bank leaders are set to hold calls with investors later on Wednesday to discuss policy and economic prospects.
“This late night intervention by Erdogan talking about rate cuts is clearly unhelpful for Kavcioglu heading into his investor calls,” said one foreign investor.
The currency was battered again last week on concerns over global inflation and an early election in Turkey.
Turkey, which relies on foreign currency income from tourism to shore up its current account deficit, risks another lost season this year as several countries imposed restrictions on travel due to the high number of COVID-19 cases.
“Prospects of central bank interest rate cuts are unfortunately causing Turkish Lira to fall sharply,” Robin Brooks, chief economist at the Institute of International Finance, said on Twitter.
“This fall in the lira means tighter financial conditions and weaker growth.”


Latest Stories

Yemen central bank shuts firms linked to currency crash

2020-12-03 04:00:00

AL-MUKALLA: Yemen’s central bank has closed 30 private exchange firms for violating currency speculation rules after the Yemeni"...
Read More

Yemen, Emergency review plans equipping medical center in Hajjah

2020-11-26 04:00:00

HAJJAH, Nov. 25 (Saba) - Yemen and the Italian 'Emergency' organization have discussed the plans to implement the 2nd stage"...
Read More

Irish dairy farmers' milk donations raise over €100k for famine-hit Yemen

2020-11-16 06:00:00

A campaign to encourage Irish dairy farmers to raise funds for those affected by war and famine in Yemen has so far raised more than"...
Read More

Two service projects begin in capital Sana'a

2020-11-10 04:00:00

SANA'A, Nov. 09 (Saba) - Deputy Prime Minister for Services and Development Affaires Hussein Maqbouli and capital Sana'a"...
Read More