Record high inflation in Turkey is pushing the “central” to maintain interest levels


The Turkish central bank was forced to keep the main interest rate unchanged yesterday, and pledged to keep the “current” monetary position until there is a significant drop in inflation after it most likely peaked in April.
According to the “German”, the Monetary Policy Committee kept the main interest rate at 19 per cent, which is what all analysts polled by Bloomberg News had expected.
“Given the high levels of inflation and inflation expectations, the current monetary policy stance will be maintained,” the committee said in a statement.
The inflation rate in Turkey recorded a rise for the seventh month last April, and the annual inflation rate rose to 17.1 percent, compared to 16.2 percent in the previous month.
And 18 analysts polled by “Reuters” had expected their opinions that the bank, under the leadership of its new governor, Shihab Qavioglu, would keep the one-week interest rate unchanged, before a possible cut in the third quarter of the year.
The Turkish currency has fallen 13 percent since mid-March when President Recep Tayyip Erdogan sacked former central bank governor Naji Iqbal, pushing trade-related inflation to soar in the import-dependent country.
The central bank last week raised its year-end inflation forecast to 12.2 percent from 9.4 percent, but it was still below market expectations.
The bank expects inflation to fall from the level of April, when it rose to 17.14 percent, the highest level in nearly two years.
It is noteworthy that it was not surprising or surprising that Turkey had witnessed economic and financial ordeals that it had recently experienced, as the chapters of the triple crisis that the country has been experiencing – the currency, the banking industry and the sovereign debt – have been going on for years. Do you see this economic turmoil provoke political unrest? This question is being discussed extensively now.
Even before the outbreak of the COVID-19 pandemic, prolonged hyperinflation and a widening deficit gap had haunted the Turkish economy.Over ten years, inflation expectations had more than halved the 5 percent target. The value of the Turkish lira has been steadily declining against the dollar since late 2017, with a 20 percent decline in August 2018. Violent efforts to adjust policies during the pandemic have led to an unsustainable combination of policies that relied on excessive credit growth, as well as selling Central bank foreign exchange reserves to compensate for capital outflows, to generate more weaknesses.
Turkey has kept its exchange rate floating since 2001, when the banking crisis and the crisis of sovereign debt and the balance of payments forced it to abandon the peg to a basket of currencies consisting of the dollar and the euro. Turkey has adopted an inflation targeting system, according to which the prices set by the policy may not be adjusted to engineer the devaluation or appreciation of the currency, or in response to external shocks, such as Covid-19, which led to an outflow of capital.
Financial markets look to the future, knowing that inflation can only be managed with trustworthy monetary policy. Why, then, did the markets not take into account the sharp depreciation of the lira long before that? The answer lies in the importance of the implications of US monetary policy for emerging markets. The global dollar liquidity created by low interest rates in the United States has implied easy access for emerging market banks to foreign currencies, including low borrowing costs.


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