Central Bank of Turkey, banks discuss interest rates after the lira plunge | Business and Economic News

After meeting with senior bankers and the country’s BDDK banking regulator, Central Bank Governor Sahap Kavcioglu stated that the banking industry and all its participants are “very harmonious”.

The governor of the Turkish Central Bank said that after the lira fell to historical lows, he discussed the recent interest rate cut with bankers at a meeting on Thursday. He also said that the banking industry can overcome market volatility.

The Turkish lira was flat on Thursday after President Tayyip Erdogan’s defense of interest rate cuts triggered a historic decline this week to historical lows, despite widespread criticism of his policy direction.

President Sahap Kavcioglu said after meeting with top bankers and the country’s BDDK banking regulator that they have conducted an overall assessment of economic development and he said that the banking industry is very strong.

“We informed them of everything, whether it was a rate cut or other issues,” Kavcioglu told reporters after the meeting. “The department, the central bank and the BDDK are very harmonious and communicate closely.”

The lira remained unchanged after the meeting, and the exchange rate against the US dollar rose 0.5% to 12.025. Before the rebound in the first two days, it hit a record low of 13.45 on Tuesday, and has fallen 45% this year, setting a record low for 11 consecutive trading days.

The Turkish Banking Association said in a statement that Thursday’s meeting discussed global and domestic developments, market and banking developments, and said the meeting was very beneficial.

A market participant said that BDDK said at the meeting that it would consider measures such as the country’s capital adequacy ratio.

BDDK could not immediately comment.

In addition, officials told Reuters that Erdogan even ignored calls from within the government to reverse the policy.

Inflation in the “fluctuation process”

The central bank said earlier on Thursday that inflation will follow a volatile process in the short term.

It made the above comments in the minutes of the Monetary Policy Committee meeting last week, lowering the policy interest rate by 100 basis points to 15%. Since September, it has reduced interest rates by a total of 400 points.

A report from the Institute of International Finance stated: “The central bank can accelerate the end of this overshoot by sending signals to end interest rate cuts and willingness to use interest rate hikes to defend the lira.”

“This will help re-anchoring inflation expectations. Inflation expectations will rise due to the depreciation of foreign exchange and increase the risk of accelerated dollarization. We will maintain the fair value at 9.50 US dollars/Turkish lira.”

Many Turks are already fighting about 20% inflation, and they worry that price increases will accelerate. Opposition politicians accused Erdogan of dragging the country into disaster.

Erdogan defended the central bank’s policy and promised to win his “war of economic independence,” forcing the central bank to turn to an active easing cycle with the goal of promoting exports, investment, and employment.

But the Turks told Reuters News that many economists described the rate cut as reckless, and opposition politicians called for immediate elections.

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