As Erdogan's rate talk fuels forex demand, the Turkish Lira sinks to 17 Dollars

[OZER]

In emerging markets, the currency has performed poorly this year
Despite a 70% inflation rate, Erdogan promised rate cuts

Despite soaring inflation rates, the Turkish lira had climbed beyond 17 per dollar for the first time since December amid a rush for foreign currency sparked by President Recep Tayyip Erdogan's reassurance that interest rates would not be raised.

Turkish lira dropped by 2% to 17.1048 per dollar on Wednesday, making its losses for this year 22.2%, worse than any other emerging market. This is the 10th consecutive year in which it has declined due to Erdogan's insistence on lower rates. He has left monetary policy far too loose to counter inflation, which is running at its highest level since 1998.

In a speech in which Erdogan pledged not to allow tightening of monetary policy, he said the rate would actually be cut. This further exacerbated the slide, with the stock market headed for its largest weekly loss since March 11. A trader who did not want to be identified because he is not authorized to speak publicly said that the nation's companies increased their foreign-exchange purchases as a response.

Peter Kinsella, head of currency strategy at Union Bancaire Privee UBP, called Erdogan's comments bizarre due to the high inflation rate of 73% year-over-year. In other words, there will be further weakness due to the usual factors -- massive inflation and high levels of credit growth.

Especially since 2016, when Erdogan defeated a coup attempt, Turkey has had a problem with monetary policy lagged behind inflation. A global supply crunch has led to a surge in consumer prices of 73.5%, while the central bank has kept its policy rates unchanged for the past five meetings. Having now obtained the world's greatest negative policy rate when adjusted for inflation, Turkey now has the lowest interest rate in the world.

Credit default swaps -- another indicator that investors are uneasy -- rose to the highest level since 2008.

[riki]

The gov can stop inflation by simply raising interest rates but this is politically risky as necessary recessions don't win elections

[akb]

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[fav_]

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[anne]

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[pit]

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[dent]

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[BWPJ]

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[iam]

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