According to the expectations and expectations of the market and customers, and in contrast to Turkish President Recep Tayyip Erdogan’s wave of opposition to high interest rates, the Turkish Central Bank decided to raise interest rates from 10.25% to 15%.
Amid anticipation of raising the interest rate to support the lira rates, the Turkish Central Bank’s Monetary Policy Committee held its first meeting today, Thursday, under the new presidency of the bank, and the resignation of Erdogan’s son-in-law, former Finance Minister, Patat Albayrak.
The Turkish lira recorded a remarkable improvement against a basket of foreign currencies after the central bank’s decision to raise interest, as the value of the lira became 7.51 per dollar, and 9.00 per euro.
Observers considered the decision a Turkish shift towards more soft stances towards the financial markets.
The Turkish central statement stated that it had been decided to raise the interest rate by 475 basis points, to re-establish the process of reducing inflation and support the stability of the lira, stressing that “creating a permanently low inflation environment will positively affect the overall economy and financial stability.”
He pointed out that the partial restrictions imposed due to Corona increase the uncertainty in economic activity, especially the services sector.
The Turkish Central Bank stressed that it will achieve its main goal of maintaining price stability and continuity by applying the principles of transparency, predictability and accountability.
This comes at a time when President Recep Tayyip Erdogan said yesterday, Wednesday, “We will not let our investors crush under the weight of high interest rates.”
The Turkish press reported that the rise in interest rates strengthens the lira, which touched record low levels this month, and will lead to a reduction in the inflation rate, which has remained stuck near 12% throughout the year despite the repercussions of the Coronavirus pandemic.
She said that raising the interest rate may not stop the recovery of the Turkish economy from the repercussions of the Corona virus, which led to a contraction of about 10% in the second quarter; But it could help stave off broader balance of payments problems by strengthening the lira.
The changes, which included the Ministry of Finance and the Central Bank, restored confidence to Turkish investors and markets after the economy was affected by a set of internal and external political and security changes.
In turn, the head of the Turkish Central Bank, Naji Aghbal, affirmed his intention to continue using all monetary policy tools in line with the main goal of price stability.
“The main objectives of the central bank are to ensure that price stability is maintained, and in line with the main objective we will use all policy tools decisively,” Aghbal said in a statement, adding that communication in monetary policy will be strengthened within the framework of the principles of transparency, accountability and predictability.
The new Turkish Minister of Treasury and Finance, Lotfi Alwan, said that the general framework for his roadmap is “macroeconomic stability, financial stability and price stability.”
The effect of new changes
Commenting on the central bank’s decision, Muhammad Ibrahim, an economic researcher at the Aegean University in Izmir, stated that raising the interest rate on the weekly repo in today’s session by 475 points was within expectations, which helps the Pound to be relatively stable or at least prevent its deterioration.
Ibrahim told Al-Jazeera Net, “Today’s meeting was important because it came after the change of the bank’s governor and the resignation of the treasury minister, which means that there was some change to support the new administration and restore confidence in the economic administration, while President Erdogan is always against raising interest.”
He believes that it is too early to judge that fundamental changes have been made in Turkey’s policy; But it seems that the political level temporarily lifted the pressure on the new administration; To restore confidence in the Central Bank and the Treasury, today’s session and the decision to raise interest comes in this context.
Ibrahim emphasized that raising the interest rate would support the stability of the lira and curb inflation. However, this increase will push the economy into recession during the next three months if this rate continues during the coming period.
Hopes for the recovery of the Turkish economy and the mitigation of the effects of the closure due to the Corona virus pandemic returned, especially after the increase in exports during last October by 5.6%, recording 17.3 billion dollars, the highest rate recorded at the monthly level this year, and the OECD affirmation that Turkey One of the countries least affected by the pandemic, after China and South Korea, among the OIC countries in 2020.