Turkish President Recep Tayyip Erdogan continues to insist that there is no independence when the conversation revolves around the Central Bank of Turkey. Everything is done at his behest and he is the one who rushes, even at the last minute, to “silence” anyone who dares to oppose his plan for low interest rates amid rising inflation and at a time when the Turkish pound is worth more as metal than as currency. In the early hours of Thursday, he replaced two deputy finance ministers in his latest reshuffle as the pound fell to new record lows.
The move comes ahead of the central bank’s decision on interest rates on Thursday.
Erdogan fired Shakir Ercan Gul and Mehmet Hamdi Gildirim, according to a decree published in the official newspaper. Appointed Mahmut Gurcan and Yunus Elite as new deputy finance ministers. He also fired other senior officials in charge of public funding and financial programs and research.
At 9.10 in the morning (Greek time) the unused Turkish pound was trading at 15.12 against the dollar, starting the day with losses of 2.30%.
A new interest rate reduction is coming
Turkey’s central bank is likely to cut interest rates again on Thursday, despite a worrying jump in inflation and currency outlook at Erdogan’s behest.
All but one of the 22 economists surveyed by Bloomberg expect the bank, led by Governor Sahab Kavtzioglu, to cut interest rates for a week, with an average forecast of 100 basis points falling to 14%. The only one who disagrees is “seeing” the TCMB “braking”.
The bank has cut interest rates by 400 basis points since September, a period in which many of their counterparts have been thinking or raising to catch up with the sharp rise in price pressures. The cuts threw the pound down, which fell more than 14 per dollar for the first time on Monday, as investors expected a further reduction in interest rates. The currency has now lost more than half of its value this year, as it depreciated by 40% in November alone.
Officials have signaled future policy. Finance Minister Nureddin Nebati said this week that Turkey was determined not to raise interest rates. Kavtzioglou told analysts this month that the bank would consider ending its cuts after the December meeting, according to an official with immediate knowledge of the matter.
What analysts say
The bank may complete its easing cycle on Thursday, citing a record drop in inflation expectations, said Deutsche Bank economist Fatih Akselik. “Although an extraordinary rate hike would probably be more difficult to implement this time around, we believe that the markets will force the TCMB to raise its policy rate to at least 25% by the end of the first quarter due to continued weakening, weakening pound and rising inflation, Akcelik said.
“We do not expect a sharp change in policy until the results of the new economic outlook appear in a few months,” said Tera Menkul Degerler economist Enver Erkan, who sees a 25 basis point drop. Erkan said he was not sure if “there would be a hawkish balance”.
Petros Kranias
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Source From: Capital
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