Ankara (Businesshala) – The head of Turkey’s central bank said on Monday that the 100 basis-point interest rate cut last month was not a surprise and had little to do with the sell-off in the lira, which declined . New record low of 9 against the dollar.
Responding to questions from a parliamentary commission, Governor Sahap Kavioglu said the central bank has not neglected its duties in reducing the policy rate from 19% to 18%.
“I can say very clearly that we did not make any surprise cuts,” he said after a presentation before the Planning and Budget Commission.
Cavcioglu said inflation – which is close to 20% after a year of growth – is following a volatile course and the bank will take risks into account when setting its policy.
In a Businesshala poll last month, only two out of 20 economists predicted a rate cut. In response to the cut, the lira fell to a series of record lows against the dollar, which has strengthened itself in recent weeks, triggering a selloff.
The lira hit a record low of 9.02 against the dollar on Monday, down more than 0.6% from 1706 GMT, bringing losses so far this year to 17.5%.
Analysts see the policy easing as the latest evidence of political interference by President Tayyip Erdogan, an opponent of high interest rates, who has long sought monetary stimulus despite rising prices.
Citing sources, Businesshala reported on Friday that Erdogan was upset that it took so long to ease the policy and that he was losing faith in Cavioglu, less than seven months after sacking his predecessor. .
Ghosh, an analyst at Commerzbank, said rates would come down under any bank governor appointed by Erdogan.
“The FX market has every reason to price lower interest rates in the coming quarters, which is exactly what it is doing, resulting in a noticeable underperformance of the lira exchange rate,” he wrote in a client note.
At the hearing, Kavioglu said central bank reserves have stabilized and were on an upward trend after declining in recent years. The data shows that net foreign reserves have increased since April.