Fitch, an international credit rating agency, strongly criticized the decision to cut interest rates in Turkey last month, and believes that Turkey’s decision to cut interest rates by 100 basis points is a foregone conclusion.
The agency’s economist, Eric Arespi, explained that the interest rate cut was an initial step and that the move that came with the change in the direction of the central bank’s monetary policy would keep the uncertainty high.
On September 23, the bank unexpectedly cut interest rates to 18 percent; Analysts saw this as new evidence of political interference by President Recep Tayyip Erdogan, who described himself as the enemy of interest rates, arguing that they were to blame for all the harm.
In a statement issued yesterday (Friday), Arespi stressed that the move would make it more difficult to control inflation, which is close to 20 per cent, and in light of the risks of economic instability and external weaknesses, there is a great risk that politics will impose more monetary easing.
The decision to cut interest rates caused the Turkish lira to fall further to an all-time low, recording a further decline in trading yesterday, after which the dollar traded at 9.23 lira. A new recession has begun since last Tuesday, in the wake of the clarification that central bank chairman Shihab Kasioglu presented to the parliamentary plan and budget committee, which he ruled would have an impact on price cuts. Lira
The lira continued to roll after Erdogan’s dismissal and the new appointments of several vice presidents and monetary policy committee members, further weakening investor confidence in the bank’s independence. Results
Despite Fitch’s outspoken warning, experts and analysts expect a new rate cut at next week’s monetary policy committee meeting because Erdogan opposed easing monetary policy within the group and appointing 3 people to accept his demands for interest rate cuts.
Experts believe that any new interest rate cut will push the lira further down and that it will fall to 9 9.5 per dollar within a month.
At a group meeting scheduled for October 21, the new rate cuts will push Turkey’s real yields into further negative territory, while other central banks in emerging economies are tightening monetary policy to control inflation.
The Turkish lira has topped the list of emerging markets’ biggest losers this year, after the central bank unexpectedly cut its core interest rate in September.
According to Christian Majio, head of the DT Securities Conservative Strategy in London, “Turkey is moving from one crisis to another, often political in nature, so I can only imagine why the next crisis will not be the last. “The lira is expected to fall to 9.75 against the dollar next year,” he said.
The weakness of the Turkish currency is expected to increase inflationary pressures on the economy by rising energy prices. They believe that the Turkish economy will go through a very difficult period, which will be reflected in the problem of unemployment in its cost of living, which will lead to a significant increase in the poverty rate.
Silva Demiralp, a professor of economics at a Turkish university, pointed out that frequent changes in jobs at the central bank are “an extra blow to credibility” and that this concept leads to an escape from the Turkish lira, a key tool in monetary policy. It is this reliability that ensures price and financial stability.
Economist Ukhur Kurz likened the central bank to a glassware store in the country.