The Turkish President Recep Tayyip Erdogan has demanded the expulsion of ten diplomats - and thus further accelerated the plunge of the lira.
Now Erdogan is rowing back.
Update from October 26, 10:05 a.m.
- The rate of the Turkish lira stabilized at a low level on Tuesday. The trigger was statements by Turkish President Recep Tayyip Erdogan that the German and nine other ambassadors should not be expelled after all. The abrupt U-turn is apparently related to Monday's price slide. Investors reacted with alarm to the diplomatic deportation demanded and pushed the national currency to historic lows. On Tuesday, the lira more than made up for the day's losses.
However, the pressure on the lira is likely to continue.
Confidence in the country's central bank is low on the financial markets, as it only lowered interest rates a few days ago despite the high inflation.
Erdogan had previously repeatedly called for an interest rate cut and exchanged several central bank presidents.
Lira crash: Turkish currency on the brink - Erdogan "accepts it cheaply"
First report from October 25, 4:02 p.m.
- On Thursday, the Turkish central bank lowered the key interest rate by 2.0 percentage points to 16.0 percent.
Economists are appalled by this step.
According to experts, with inflation of over 19 percent, an interest rate hike would be necessary to strengthen the purchasing power of the lira.
Turkish President Recep Tayyip Erdogan, on the other hand, believes that a lower interest rate could stimulate the economy.
However, only an increase in the key interest rate would help in the fight against high inflation.
Turkey: Export products are becoming cheaper and more competitive
Things have been looking bad for the Turkish lira since the rate cut.
It has lost 3.5 percent of its value against the euro.
Since the beginning of the year, the loss with the euro has been around 25 percent.
After Erdogan declared several ambassadors from Western countries to be undesirable persons on Sunday (October 24), the lira plummeted again, especially against the dollar.
Ascan Iredi, portfolio manager at DZ Privatbank SA,
told
ntv
: “The government is taking it
Acceptance of the decline in the value of the Turkish currency. ”This is good for export, as Turkish products become cheaper and more competitive.
But the interest rate cut does not bring many more advantages.
In the long run, this even turns out to be a disadvantage for Turkey.
“It is not just national wealth that is falling due to inflation,” explains Iredi.
As a result, the entire country is losing international connections, which has a particularly negative impact on companies.
Erdogan's financial policy will have an impact on the elections
In order to save the lira, the Turkish government would have to accept that higher interest rates are needed, Iredi makes clear.
"Otherwise you will not be able to stop the decline of the Turkish lira." Ultimately, Erdogan is only interested in votes in the next election.
But Iredi makes it clear that the president could scare away voters with his current tactics in the long run.
“Ultimately, it will cost jobs and then at the latest it will also have an impact on the next elections,” says the portfolio manager, summing up the precarious situation.
(ph)
