The current governor of the Turkish central bank, Sahap Kavcioglu, tried to reassure large foreign investors that concerns about the premature reduction in rates were unjustified.
The Turkish lira settled on its weakest level so far on Thursday, worth $ 8.7 per cent, after strong data on U.S. jobs accelerated the three-month fall in which investors lost confidence in the ability of the authorities to curb double-digit inflation.
The lira, far behind emerging markets this year, stood at 8,705 at 17:19 GMT, a record low closing price. Its 1% slip picked up speed as dollar and U.S. yields jumped after stronger-than-expected U.S. payroll data.
The currency has fallen 17% since mid-March, when Turkish President Recep Tayyip Erdogan, a critic of high interest rates, ousted a hawkish and well-respected central bank chief.
The current governor of the bank, Sahap Kavcioglu, on Wednesday called for a call to reassure large foreign investors that concerns about the premature reduction in rates were unwarranted.
But several callers told Reuters news agency they were unconvinced, especially after Erdogan (seen by many to determine rates), said a day before the policy easing should begin. in the next two months.
The president has abruptly fired three heads of banks in two years, making the country more vulnerable to the financial crisis, they said.
“I think Kavcioglu has a tourist visa in the [central bank] so what he says or doesn’t say may not matter much, ”said Erik Meyersson, a senior economist at Handelsbanken, based in Stockholm, who was on call.
“If Erdogan says rates will go down in July or August, that’s likely to happen.”
Those who heard Kavcioglu and other bank officials on the call said they still expected it to start reducing the political rate by 19% in the third quarter.
Inflation has risen above 17 percent in recent months, but fell unexpectedly to 16.6 percent in May due in large part to the consequences of the coronavirus blockade, according to official data. Thursday.
Still, most analysts expect consumer prices to remain fixed for most of the year due to currency weakness and high commodity prices, which increase import costs. The lira hit an intra-day record of $ 8.88 per dollar on Wednesday.
Tourism revenue, which often offsets chronic current account deficits, has also been severely affected by the coronavirus pandemic.
“All these factors make us less constructive in Turkey than other … emerging markets [EMs]Said Shamaila Khan, head of debt strategies at AllianceBernstein in New York.
“It is very difficult to find out how they gain credibility. Obviously, every time they gain credibility there are political statements that come out of interest rates that are not useful, ”he said.
The World Bank and other analysts say a major risk to Turkey is a rapid tightening of U.S. Federal Reserve policy, which would further raise the dollar and withdraw funds from vulnerable MS.
Kavcioglu told investors that inflation would enter a significant downward trend around September or October.
Nikolay Markov, a senior economist at Pictet Asset Management, said the call convinced him that rates would drop in mid-summer and that Kavcioglu understood he needed to “please the president.”
“He seemed willing to do whatever it took to delay the decision to cut the rate as much as possible, while also being aware of the need at some point,” Markov said.