Turkish President Recep Tayyip Erdoğan has caused the lira to weaken again.

One day before the meeting of the Central Bank Council on Thursday, he again demanded a cut in interest rates, saying that people had to "get rid of this scourge".

In the foreign exchange markets, a decrease of 1 percentage point to 15 percent was expected with an inflation rate of almost 20 percent.

And the central bankers in Ankara followed the president's demand: They reduced the key interest rate from 16 percent to 15 percent.

Andreas Mihm

Business correspondent for Austria, East-Central and Southeastern Europe and Turkey based in Vienna.

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Erdoğan had reinforced his request in front of politicians in his AK party with the interest ban in the Koran.

“On this matter, the commandment (of Allah) is clear.

We will look at the matter from this point of view and take our steps accordingly, ”he said, according to local media reports.

Interest is the cause, inflation is the effect.

This is in contrast to the prevailing view of economists that high inflation, as currently prevailing in Turkey at 20 percent, can only be combated with higher interest rates.

30 percent loss in value this year

The lira came under pressure on the foreign exchange market and lost up to 3 percent of its value. By early Thursday morning it had more or less stabilized and was trading at around 10.73 lira per dollar and 12.16 lira per euro. This means that the devaluation amounts to around 30 percent this year alone. The psychologically important mark of 10 lira per dollar was only broken at the end of last week when the dollar gained strength against other currencies, including the euro, due to the high inflation rate in America and the expectation of rising US interest rates.

Turkey is heavily dependent on financing in dollars and euros in view of high imports also for energy resources and high debt. A loss in value of the lira not only heats the inflation, which has been rising for months, but also makes it more difficult for them to finance their foreign currency debts in lira. As a proof of this, the Reuters agency reports that the Turkish state energy company BOTAS will probably have to turn to the central bank for help in order to cover its foreign exchange needs in winter due to the high gas and oil prices.

The central bank's foreign exchange reserves officially amount to $ 125 billion, of which net of $ 32 billion after foreign debt is deducted.

If you take the overdrafts with other central banks (swaps) such as China, South Korea and Qatar, they turn out to be negative.

Opposition demands resignation of the president

Erdoğan said that as long as he was in his position, "I will continue my fight against interest rates and inflation until the end". He called on companies to use the monetary easing that began in September to invest, hire employees and export goods. When he left parliament, Erdoğan then said that the central bank decides independently on interest rates. Because of his anger about monetary policy and supposedly too high interest rates, however, he had repeatedly changed the central bank governor and other members of the de jure independent body, most recently in March.

Opposition politicians demanded his resignation again. The central bank has given up its core task of maintaining price stability. You see the devaluation of the lira and the rise in the exchange rate "only as a spectator," said Kemal Kılıçdaroğlu, chairman of the Republican People's Party (CHP).

Commerzbank analyst Tatha Ghose, however, wrote with a touch of fatalism that the central bank's decision was "not really relevant" for the lira exchange rate.

The result is a more or less pronounced lira weakness.

If the central bank had omitted the rate cut, the currency would have come under pressure again, he argued.

Erdogan's likely reaction will take care of that.

If, on the other hand, it should lower interest rates as it has now done, it will not matter whether this step includes 50, 100 or 200 basis points.

The current movement of the lira will intensify and it will hardly be possible to stop it.