Turkey holds off from rate cut despite Erdogan’s vow to ease

23/6/2022 3:56:00 PM

Turkey holds off from rate cut despite Erdogan’s vow to ease - Bloomberg

Turkey holds off from rate cut despite Erdogan’s vow to ease - Bloomberg

(June 23): Turkey’s Central Bank opted for a longer policy pause in the face of runaway inflation and a steep depreciation in the lira, even after a blunt message from President Recep Tayyip Erdogan calling for interest-rate cuts to resume.The Monetary Policy Committee, led by Governor Sahap Kavcioglu, on Thursday kept its benchmark at 14% for a sixth month, in line with the forecasts of most economists surveyed by Bloomberg. The lira initially erased losses after the announcement and

A (June 23): Turkey’s Central Bank opted for a longer policy pause in the face of runaway inflation and a steep depreciation in the lira, even after a blunt message from President Recep Tayyip Erdogan calling for interest-rate cuts to resume.for the latest news you need to know.for the latest news you need to know.for the latest news you need to know.

The Monetary Policy Committee, led by Governor Sahap Kavcioglu, on Thursday kept its benchmark at 14% for a sixth month, in line with the forecasts of most economists surveyed by Bloomberg.The lira initially erased losses after the announcement and traded little changed against the dollar.The visit marks a step in Prince Mohammed's effort to rehabilite his image beyond the Gulf, and comes as Erdogan seeks financial support that could help relieve Turkey's beleaguered economy ahead of tight elections for the president.Among the factors behind faster inflation are supply shocks and an increase in energy prices because of geopolitics, according to the MPC.Erdogan's decision to revive ties with one of his biggest rivals is also driven in large part by economics and trade.The Central Bank would implement additional macroprudential steps if needed and “expects the disinflation process to start on the back of measures taken,” it said in a statement accompanying the decision.Erdogan said last week he and Riyadh's de facto leader would discuss"to what much higher level" they can take ties during talks in Ankara.Turkey isn’t deviating from its maverick approach of keeping rates deeply below zero when adjusted for inflation even as prices surge, breaking with Central Banks embarking on what may prove to be the most aggressive tightening of monetary policy since the 1980s.The visit is expected to bring"a full normalisation and a restoration of the pre-crisis period," a senior Turkish official told Reuters on condition of anonymity.

Inaction by Turkish policy makers since they ended a round of rate cuts last year has put added strain on the lira and touched off a surge in consumer prices that Goldman Sachs Group Inc estimates will soon reach 80%."A new era will begin.But it is now drumming up investment and central bank assistance from the very countries it opposed on ideological grounds in the wake of the Arab Spring revolts.Annual inflation was at a 24-year-high of nearly 74% in May.The insistence on unprecedentedly loose monetary policy will leave Turkish assets even more vulnerable as domestic price pressures build further and the European Central Bank prepares to join peers by starting to raise rates soon.There are no public statements scheduled after their talks.The lira is the worst performer in emerging markets this year with a loss of more than 23% against the dollar.He's all about winning elections and I think he has decided to kind of swallow his pride.But pressure from Erdogan to keep rates low means hikes are off the table for Kavcioglu.Agreements on energy, economy and security would be signed during the visit, while a plan was also in the works for Saudi funds to enter capital markets in Turkey, the official said.Agreements on energy, economy and security would be signed during the visit, while a plan was also in the works for Saudi funds to enter capital markets in Turkey, the official said.

Instead, policy makers have deployed measures to curb credit growth and make the lira more appealing to savers while trying to rebuild their reserves.Erdogan, long a believer that cheaper borrowing costs can slow inflation instead of pushing it higher, appointed Kavcioglu as governor last year after ousting his three predecessors and seeking more sway over monetary policy.Criticism halted Prince Mohammed is on his first tour outside the Gulf region in over three years including a visit to Jordan.'You should be ashamed' Turkey's rapprochement with the Saudis began with an Istanbul court decision in April to break off the trial in absentia of 26 suspects accused of links to Khashoggi's killing and to transfer the case to Riyadh.The new measures have done little to address the causes of a sharp deterioration in domestic confidence that has weakened the lira.As inflation spirals higher, public discontent over the management of the economy is rising.Erdogan at the time blamed it on the"highest levels" of the Saudi government.Globally, more than 60 Central Banks have raised borrowing costs since the start of 2022.But it paved the way for a visit to Saudi by Erdogan three weeks later, when he hugged the crown prince.The visit, including the welcoming ceremony at the palace, marks a turnaround in their relations.

Just last week, the US Federal Reserve delivered its biggest move since 1994 and Switzerland unexpectedly raised rates the next day.Ankara stopped all criticism and halted its murder trial in April, transferring the case to Riyadh in a move condemned by human rights groups.Kavcioglu has said, however, that Turkey didn’t need to increase rates just because others are doing so.The view that higher rates fuel price increases goes against textbook assumptions held by Central Bankers around the world.US President Joe Biden is set to visit Saudi Arabia in July as Washington struggles with record high gasoline prices and building a united front against Russia after its invasion of Ukraine.” Ankara expects the mending of fences between the two Sunni powers to help prop up the Turkish economy at a crucial stage of Erdogan's rule.“We expect that the Turkish Central Bank will resist rate hikes for as long as possible despite runaway inflation and monetary tightening by multiple other Central Banks,” said Marek Drimal, lead strategist in London at Societe Generale SA for Central Europe, the Middle East and Africa.“Instead, the Central Bank is likely to continue its defence of the lira via other means.Saudi funds and foreign currency could help Erdogan shore up support ahead of elections by June 2023, analysts say.Saudi funds and foreign currency could help Erdogan shore up support ahead of elections by June 2023, analysts say.

” Subscribe to Mid-day email alert We deliver news to your inbox daily.Analysts believe the resulting drop in Erdogan's public approval and the depletion of state reserves means the Turkish leader can ill afford to maintain his hostile stance toward the petrodollar-filled Gulf states.

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