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Turkish central bank, banks discuss rates after lira tumble

ForexNov 25, 2021 02:01PM ET
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© Reuters. FILE PHOTO: Turkish lira banknotes are seen in this illustration taken in Istanbul, Turkey November 23, 2021. REUTERS/Murad Sezer/Illustration

By Ebru Tuncay and Tuvan Gumrukcu

ISTANBUL (Reuters) -Turkey's central bank governor said he discussed recent interest rate cuts with bankers at a meeting on Thursday after a slide in the lira to record lows, and he also said that the banking sector was able to overcome market volatility.

Turkey's lira was flat on Thursday after a historic slide to all-time lows this week, triggered by President Tayyip Erdogan's defence of interest rate cuts, despite widespread criticism of his policy direction.

Governor Sahap Kavcioglu said after the meeting with top bankers and the country's BDDK banking watchdog that they made general evaluations on economic developments, and he said that the banking sector was very strong.

"We informed them about everything, whether it be interest rate cuts and other issues," Kavcioglu told reporters after the meeting. "The sector, central bank and BDDK are very much in harmony and in strong communication."

The lira was unchanged after the meeting, trading 0.5% firmer at 12.025 to the dollar. Before a rebound in the last two days, it hit a record low of 13.45 on Tuesday, down 45% this year, touching record lows in 11 consecutive sessions.

Global and domestic developments, the markets and banking sector developments were discussed at Thursday's meeting, the Association of Turkish Banks said in a statement, describing the meeting as very beneficial.

One market participant said the BDDK told the meeting that it would consider measures such as the country's capital adequacy ratio.

The BDDK was not immediately available for comment.

Separately, officials told Reuters Erdogan had ignored appeals, even from within his government, to reverse policy.

INFLATION ON 'VOLATILE COURSE'

The central bank said earlier on Thursday inflation would follow a volatile course in the short term.

It made the comments in the minutes of last week's monetary policy committee meeting, where it cut its policy rate by 100 basis points to 15%. It has lowered the rate by a total 400 points since September.

"The central bank can hasten the end of this overshoot by signaling an end to rate cuts and a willingness to use hikes to defend the lira," a note from the Institute of International Finance said.

"This would help re-anchor inflation expectations, which are rising due to FX pass through from devaluation, raising the risk of accelerated dollarization. We maintain our fair value at $/TRY 9.50."

Many Turks, already grappling with inflation of around 20%, fear price rises will accelerate https://www.reuters.com/markets/europe/lira-collapse-leaves-turks-bewildered-opposition-angry-2021-11-23. Opposition politicians have accused Erdogan of dragging the country towards disaster.

Erdogan has defended central bank policy and vowed to win his "economic war of independence", having pressured the central bank to move to an aggressive easing cycle https://www.reuters.com/markets/europe/erdogans-risky-experiment-heal-turkeys-economy-2021-11-23 with the goal of boosting exports, investment and jobs.

But many economists have described the rate cuts as reckless and opposition politicians called for immediate elections. Turkstold Reuters https://www.reuters.com/markets/europe/lira-collapse-leaves-turks-bewildered-opposition-angry-2021-11-23 the dizzying currency collapse was upending their household budgets and plans for the future.

Turkish central bank, banks discuss rates after lira tumble
 

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Comments (4)
Zvani Zmaj
Zvani Zmaj Nov 25, 2021 7:10AM ET
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In Turkey ist the Inflation not temporary, but in the US (5 %) und Europe (4%). The turkish central bank need to raise interest rates but the FED and the European central banks dont need this :) Can somebody explain.
Fade Dance
Fade Dance Nov 25, 2021 7:10AM ET
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The USD is a safe haven currency. Expectations for US rate cuts have been sharply rising in the near end of the curve, and this has had the effects of curve flattening and strengthening the dollar. Much of the world is dollarized, and loose economic conditions *******up dollar denominated debt which increases demand for dollars in the future (rolling debt). The enormous size of perpetually rolling USD debt skews risk away from inflation and towards a dollar shortage and liquidity crisis when the world risks-off (2020/2008). The US exports dollars (runs a deficit and is the largest consumer force in the world, denominated in USD), and these dollars return to the US in bond purchases and inflows to US assets (+1 trillion USD in US equity over the past year). This is the reality of being a reserve asset (dollar bid in return for increasing foreign ownership). Turkey is not a reserve asset. It is not a safe haven. Sorry, this is reality. Pull the rug and there is *no bid* for the Lira.
Jan Buyle
Jan Buyle Nov 25, 2021 6:12AM ET
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That is what you get when you give all the power to a narcistic dictator... poor turks...
Mir Chang
Mir Chang Nov 25, 2021 1:52AM ET
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Ill paper trade this pair to see how my skills are but its tough trading a pair that only has 95% to the upside.
Mir Chang
Mir Chang Nov 25, 2021 1:51AM ET
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I dont anyone has the ***to buy the lira even as its a god of a short back to 11.
 
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