DM Monitoring
ANKARA: Turkey has tightened last week the monetary policy to save its plunging currency and reassure investors that the country’s economy is recovering from the coronavirus pandemic but challenges remain, experts said. The central bank last Friday stopped funding local lenders with its one-week repurchase rate, forcing the banks to borrow from a more expensive overnight window, following the Turkish lira’s plunge to an all-time low of 7.36 against the U.S. dollar.
Analysts said the move equals to a 150 basis-point indirect interest rate hike.
However, the measures seemed to have had little effect on the falling of lira which was traded Monday afternoon at 7.31 against the dollar. Despite economists’ calls for an urgent interest hike to support the embattled currency, the central bank has avoided such a direct move as Turkish President Recep Tayyip Erdogan publicly opposes interest hikes, arguing it will affect growth and fuel inflation.
A series of interest rate cuts since last year have pushed the nation’s current account into a deficit, risking a fresh round of inflation, while also fueling demand for foreign currency.
Turkey already had economic problems before the COVID-19 outbreak, trying to recover from a previous currency meltdown in 2018, which triggered a recession. These have turned much worse by the global health crisis. “In addition to the weaknesses of the economy, the impacts of the measures concerning the coronavirus have dealt a heavy blow and made life much more difficult, especially for low income households,” political analyst Serkan Demirtas told Xinhua.
He said that last week’s depreciation of lira has made the national currency 22 percent less valuable against the U.S. dollar and other prominent currencies.
“Some economists suggest that the government’s ways of tackling the economy have failed to produce resilience and have left it vulnerable to any sort of global turbulence,” he noted.
Demirtas believed “a very difficult period lies ahead,” referring to Ankara’s geopolitical and energy ambitions in Eastern Mediterranean which could flare hostilities with its neighbor and NATO ally Greece, backed by the European Union.
Erdogan has rebuked the criticism, saying that the country’s economy is “on the fast lane,” downplaying the lira’s sharp fall.
