The Turkish lira has fallen in a call to cut Erdogan’s rate on Business and Economic News

The frequent call to reduce rates and remove three central bank chiefs has put Turkey under greater financial stress.

President Recep Tayyip Erdogan has sent the Turkish lira to new highs for the next two months after calling for interest rate cuts and talking to the new central bank governor about it.

“I am behind the same claim on this issue – I also spoke to the central bank governor today – we certainly need to lower interest rates,” Erdogan said late Tuesday in an interview with state television station TRT Haber. “To do that, we need to see interest rates start to fall in July and August,” he said, adding that lowering interest rates would lift the investment burden.

The Turkish leader’s remarks were part of a longer explanation of orthodoxy that does not believe that lower borrowing costs will help slow inflation, as most of the world’s central banks believe. Reducing interest rates will lower producer costs and ultimately lead to a slower rise in consumer prices, Erdogan said.

“If we remove the burden of interest rates from investments and costs, we will enter a calmer environment because interest rates are the cause of cost inflation,” Erdogan said.

Credibility eroded

Erdogan has often demanded borrowing costs and the removal of the heads of the three central banks in less than two years has eroded Turkey’s monetary credibility and made it weaker in the face of high inflation and the financial crisis.

The currency was trading at 8.63 on Wednesday at 05:27 GMT.

It has lost 16 percent since mid-March when Erdogan, a self-described “enemy of interest rates,” removed the wonderful and respected head of the central bank and installed the same critical opinion on tight politics.

Sahap Kavcioglu, the new bank governor, has maintained the policy rate at 19% since, although analysts expect a reduction in the third quarter. Inflation has risen by more than 17 per cent and currency depreciation is exacerbating price pressures through Turkey’s large imports.

Central bank chiefs will then hold calls with investors on Wednesday to discuss political and economic perspectives.

“This overnight intervention in which Erdogan talks about rate cuts clearly does not help Kavcioglu to go to calls for his investors,” a foreign investor said.

The currency was beaten again last week due to concerns about global inflation and early elections in Turkey.

Turkey, which relies on foreign currency tourism to consolidate its current account deficit, risks another lost season this year, as several countries imposed a number of COVID-19 cases and imposed travel restrictions.

“Expectations of central bank interest rate cuts are sadly causing the Turkish lira to fall sharply,” Robin Brooks, chief economist at the International Finance Institute, said on Twitter. “This fall in the lira means tighter financial conditions and weaker growth.”