Turkey’s Erdogan Vows To “Significantly” Cut Rates As Trump Set To Roll Out Sanctions Over S-400 Purchase
Lately not a week passes without some dismal news involving Turkey hitting the tape, and yet the lira continues to levitate, blissfully ignorant of the storm clouds headed for Ankara, levitating on hopes the Fed will cut rates and sprinkle golden showers on emerging markets. However, in light of the two latest developments, the Mrs Watanabe sellers of USDTRY may finally pay attention.
On Sunday, Turkish President Recep Tayyip Erdogan – who last weekend fired the head of the central bank for not cutting rates fast enough, and who has now become the de facto head of the CBRT – promised “significantly lower interest rates by the end of the year“, Bloomberg reported.
“We aim to reduce inflation to one digit by the end of this year,” Erdogan told journalists in Istanbul, according to the state-run Anadolu news agency. “As we achieve this, we will achieve our year-end interest rate target as well.” Of course, should interest rates drop to one digit, the USDTRY will promptly collapse to two, as the rate differential between the lira and the dollar collapses, removing the main incentive to go long the lira at a time when the Turkish economy remains in crisis.
Having founded the economic school of Erdoganomics, according to which inflation can be achieved only by lowering rates, the Turkish president and his US counterpart have quickly become kindered spirits when it comes to monetary policy. And just as Trump heaps pressure and insults on Fed Chair Powell, Erdogan has frequently accused the central bank of keeping borrowing costs too high. Last month, he complained that while the Fed was moving toward a rate cut, Turkey’s policy rate of 24% “is unacceptable.”
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