The value of the lira again hit an all-time low, even though the Turkey stopped cutting interest rates by raising its key interest rate from 8.5% to 15% for the first time in two years and three months.
According to Reuters on the 23rd (local time), the exchange rate of the lira per dollar once hit 25.74 this morning, and the value of the lira fell 3.3% on the same day, reaching an all-time low in Turkey history. Including the previous day, the value of the lira plunged about 8.5%.
The previous day, the central bank of Turkey expected the plunge in the value of the lira to calm down as it sharply raised its key interest rate, but it went beyond expectations.
Analysts say this is due to the fact that the base rate hike did not meet expectations. Ahead of the central bank’s decision, Reuters expected a 21% increase.
Regarding the previous day’s decision, investment bank Goldman Sachs said, “The policy shift seems to be more gradual than we thought.” There are also concerns that the new central bank governor Harfiz Gaye Erkan lacks the discretion to aggressively cope with inflation under the current administration.
However, Turkey financial authorities explained that a gradual change is inevitable, saying that radical policy changes could lead to market instability.
“If interest rates were raised by a larger margin, there could have been problems for banks,” a senior official told Reuters. “The current priority is to move forward in line with the balance between inflation and interest rates while keeping an eye on real interest rates.”
New Treasury Secretary Mehmet Simshek also recently said, “The road to price stability will be gradual but steady,” and the central bank also said the previous day that it will continue its tightening stance in a timely and gradual manner.
Despite global high prices, the Turkey has maintained its interest rate cut stance for more than two years since 2021, leading to serious inflation, with inflation once exceeding 85% year-on-year last year. Inflation has fallen slightly to less than 40% in recent years, but the economic crisis continues, with the value of the lira falling more than 90% over the past decade and central bank reserves running out to defend the exchange rate.
