He went to the field with a tiny basket that held no more than ten tomatoes.
The pro-people profile of her husband Tayyip Erdogan, the First Lady of Turkey wanted to strengthen by gathering tomatoes in a field, in Agia Ankara. The scene is clearly set, with the Emine Erdogan to participate in the harvest with a tiny basket that held no more than ten tomatoes.
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Inflation – a record in Turkey and interest rate cuts
Last week, the Bank of Turkey sent a real shock to the markets by cutting interest rates on the Turkish lira by 100 basis points when inflation in the neighboring country was running at 80%, even by official, usually embellished, figures. At a time of high global inflation and with central banks around the world raising interest rates risking recession, the move now brings Turkey’s borrowing costs to 13%. The news automatically sent the Turkish lira further down by around 1%, with the currency now breaking the 18 pound barrier to the dollar, falling to 18.14 pounds to the dollar.
The central bank’s apparent intention is once again to encourage lending in order to boost the economy and achieve high growth rates ahead of next year’s parliamentary elections and while polls show the ruling party losing state by state. In its related announcement, the Bank of Turkey underlines that “it is important that financing conditions continue to support the economy in order for industrial production to maintain the acquired speed and for the positive trend in employment to continue, amidst a period of increasing uncertainty in everything it’s about global growth and escalating geopolitical risks.” Speaking to the Financial Times, Cheyhun Yeltsin, Professor of Economics at Bogazici University in Istanbul, commented that “probably orders came from above to lower interest rates because there are probably elements that point to a slowdown in growth.” He predicts that the central bank will continue “in the same direction for better or worse until the elections”.
The Bank of Turkey’s unorthodox policy has ceased to surprise, as it is dictated directly by the Turkish president and aimed at securing his popularity. However, given the vertiginous inflation in the country that is constantly degrading the living standards of the Turkish people and with real interest rates long since in deep negative territory, it was not expected that the central bank would further reduce the key interest rate from 14%. At this level, the Bank of Turkey has compressed the cost of borrowing in the last year.
It started in September last year, when Sahap Cavcioglu, a staunch supporter of Tayyip Erdogan and his unorthodox theory that high interest rates cause inflation, cut borrowing costs by 100 bps. to 18% from the 19% to which his predecessor had raised it and fell out of favor. An inevitable consequence of the successive reductions in interest rates is the continuous slide of the Turkish currency. After a similar decline over the course of last year, since the beginning of 2022 the Turkish lira has lost more than 25% of its value against the dollar. As financial analysts point out, the Turkish president apparently hopes that with the rapid devaluation of the currency Turkey’s exports will increase, while cheap borrowing will lead to an increase in investments and the creation of jobs. So far, however, it mainly succeeds in impoverishing the Turks and depleting Turkey’s foreign exchange reserves after ineffective interventions by the central bank in the foreign exchange market in order to support the currency. According to estimates by Goldman Sachs, when the central bank’s obligations are removed, then not only are its assets zero, but they are in the red with $61 billion in debt to banks.
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