This caused a real shock in the markets yesterday Bank of Turkeycutting the Turkish Lira interest rate by 100 basis points when o inflation in a neighboring country jumps by 80%, even with official, usually embellished figures. During a time of high inflation around the world, when central banks around the world increase their interest rates At the risk of a recession, the move now pushes Turkey’s borrowing costs up to 13%. The news automatically made him fall again Turkish lira by about 1%, with the currency now breaking the £18 barrier against the dollar, falling to £18.14 to the dollar.

The apparent intention of the central bank is to once again stimulate lending to stimulate the economy and achieve strong growth ahead of next year’s parliamentary elections and at a time when polls show the ruling party is losing state by state. In a statement, the Bank of Turkey emphasizes that “it is important that financing conditions continue to support the economy so that industrial production maintains its momentum and maintains a positive trend in employment during a period of growing uncertainty in everything that concerns it. global development and growing geopolitical risks.” Speaking to the Financial Times, Cheyhun Yeltsin, an economics professor at Bogazici University in Istanbul, commented that “probably the order came from above to lower interest rates because there are probably elements that indicate a slowdown in growth.” He predicts that the central bank will continue “in the same direction, for better or worse, until the election.”

The intention of the central bank is to once again encourage lending to stimulate the economy ahead of the elections.

The unorthodox policy of the Bank of Turkey has already ceased to surprise, as it is dictated directly by the President of Turkey and is aimed at ensuring his popularity. However, given the country’s breakneck inflation, which is constantly lowering the standard of living of the Turkish people, and with real interest rates long in deep negative territory, the central bank was not expected to further cut its key interest rate from 14%. At this level, the Bank of Turkey reduced the cost of borrowing last year.

It started last September when Sahap Cavcioglu, a staunch supporter of Tayyip Erdogan and his unorthodox theory that high interest rates cause inflation, cut borrowing costs by 100 basis points. to 18% from 19%, to which his predecessor raised him and fell out of favor. The inevitable consequence of successive cuts in interest rates is a permanent depreciation of the Turkish currency. After a similar fall during the past year, the Turkish lira has lost more than 25% of its value against the dollar since the beginning of 2022. According to financial analysts, the Turkish president clearly hopes that with the rapid devaluation of the currency Turkish exportsand cheap loans will lead to increased investment and job creation. So far, however, it has mostly succeeded in bankrupting the Turks and depleting Turkey’s foreign exchange reserves after ineffective central bank interventions in the foreign exchange market to support the currency. Goldman Sachs estimates that if you subtract the central bank’s liabilities, its assets are not only zero, but also unprofitable, with bank debt of $61 billion.