Turkey’s Central Bank Governor Shihab Kavcioglu said on Monday it was a mistake to link the lira’s recent depreciation to the bank’s cut in its key interest rate by 100 basis points to 18% in September.
Answering questions from lawmakers in the Turkish parliament’s Planning and Budget Committee, Kavcioglu said the rate cut was not a surprise and that the central bank had not neglected its duties.
The lira fell more than 0.6% today to record a new record low at 9.02 against the green currency, bringing its losses since the beginning of the year to 17.5%.
The Turkish lira fell above the 8.9 level against the dollar last week, touching its lowest level ever, on fears of an unexpected rate cut.
Today, the dollar rose, supported by concerns about global inflation and the expected tightening from the US central bank.
Data showed that Turkey’s inflation rose slightly less than expected to 19.58% year-on-year in September, the highest level since March 2019, incurring more losses for real returns after the central bank cut the interest rate to 18%.
Analysts considered the easing of monetary policy as new evidence of political interference from President Recep Tayyip Erdogan, a staunch opponent of high interest rates who has been calling for monetary stimulus despite a sharp rise in prices.
Citing sources, Reuters reported on Friday that Erdogan was furious that monetary policy easing had taken so long and that he was losing confidence in Kavcioglu less than seven months after his predecessor was ousted.