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Turkish lira drops to fresh low ahead of key central bank decision

The Turkish lira fell to fresh lows as investors braced for the country’s central bank to cut rates again on Thursday even as inflation held firm across the economy. economy.

The currency, which has lost more than 40% of its value against the dollar since the bank started cutting interest rates at the behest of President Recep Tayyip Erdogan in September, touched TL 15.2 against the US dollar in trading session in London.

Erdogan, a staunch opponent of high interest rates, has emphasized that the central bank has continuously cut rates even as inflation has risen to an official level of more than 21% and Turkish Lira was in free fall. He has argued that a cheap currency will eventually lead to price stability by boosting exports, investment and employment.

The central bank forecast on Thursday to interest rates up 1 percentage point to 14 percent, according to a Reuters poll. The one-week repo rate was set as high as 19% until September, when governor Sahap Kavcıoglu started the cycle of aggressive cuts. In early September, the lira traded at around $8.

Economists argue that cutting interest rates at a time of such sharp inflation is an unprecedented economic experiment that is likely to lead to high inflation, further eroding the living standards of a group of people. who are suffering from increasing poverty.

Lira line chart per US dollar shows lira dire in 2021

“If it weren’t for the pain and suffering inflicted on 84 million people, this would be a fascinating economic experiment,” said Refet Gurkaynak, a professor of economics at Ankara’s Bilkent University.

“It shows that economists really understand the fundamentals of monetary policy very well. We knew this would be the outcome – and rightfully so. ”

Erdogan, whose ruling party has eroded support in the polls amid economic uncertainty, is expected to announce a large minimum wage increase on Thursday aimed at offsetting the currency’s impact. price slippage to the public. Pro-government media reports that the increase is expected to be around 35 to 40%.

The Turkish president, who earlier this month appointed a new finance minister after his former chief economist resigned, announced a further shake-up in the economic team early on Thursday. Five.

He dismissed two deputy finance ministers Sakir Ercan Gul and Mehmet Hamdi Yildirim, according to a decree published in the official gazette.

He replaced them with Yunus Elitas, an official, and Mahmut Gurcan. Gurcan is a former ruling party official who, like the family of Nureddin Nebati, the new finance minister, also has a textile business.

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