Turkey's Erdogan: To introduce new financial instrument to ease burden from volatile forex rates
|Turkish President Recep Erdogan said on Monday that he would introduce a new financial instrument to ease the burden from volatile forex rates. The financial fluctuations and price hikes, he said, have no basis in economic fundamentals and Turkey will not bow to attacks and plots against it.
Citizens would not have to convert lira savings into foreign exchange due to volatility, he reassured, adding that he would encourage saving in the lira. Erdogan added that he was planning a 1.0% cut in corporation taxes and that credits would be given to support employment. There is no need to turn back from free market economy rules, Erdogan added, saying that in a few months, interest rate cuts would bring about a fall in inflation.
Market Reaction
In recent trade, USD/TRY has accelerated to the north of the 18.00 level, where it trades higher by nearly 10% on the day. Erdogan has been doubling down as of late on his assistance on the fact that there is "no going back" on his new economic agenda, which is characterised by attempts to lower inflation by lowering interest rates rather than hiking them.
Many view this policy as misguided (economists are near-unanimous in their agreement that rates need to be lifted to reign in inflation, not lowered) and putting the Turkish economy at risk of hyperinflation and financial crisis. The YoY CPI rate is already above 20% as of November. Speaking of rate cuts, that is exactly what the CBRT did last week. The bank lowered interest rates to 14.0% from 15.0% in a move that has, along with Erdogan's rhetoric, weighed heavily on the lira in recent sessions.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.