The Banks Association of Turkey reported today, Saturday, that Finance Minister Noureddin Nabati briefed the union, the Banking Regulatory and Supervision Authority and directors of state banks on the new economic model with low interest rates set by the government, after the lira plunged to record levels.
"Our banks will continue to use their resources to meet the financial needs of families and the real (transaction) sector within the free market mechanism," the Federation of Banks said in a statement.
The lira reached a new low of more than 17 against the US dollar on Friday, after fears of an inflationary spiral escalated, coinciding with President Recep Tayyip Erdogan's new policy in the face of rising prices.
The lira lost about 55% of its value this year, 37% of which were during the past 30 days.
Meanwhile, TUSIAD, Turkey's largest industrial and business association, urged the Turkish government on Saturday to abandon its monetary policy based on low interest rates.
The association called for a return to "the rules of economics," according to Reuters.
TUSIAD said in a statement that it had warned the government of the negative effects of the low interest rate policy, adding that economic problems were hurting businesses and citizens alike.
Interest rate cut trip
The Turkish Central Bank cut the interest rate for the fourth time in a row by 100 basis points from 15% to 14%, and in parallel with that, Turkish President Recep Tayyip Erdogan announced raising the minimum wage to 4250 Turkish liras, in a larger proportion than what observers expected.
The Central Bank indicated yesterday, Saturday, that the decision to cut interest came after evaluating the factors that affect monetary policy, explaining that the continued improvement in the current account balance driven by foreign demand contributes to the goal of achieving price stability.
In a short time, the Central Bank took 4 successive decisions that led to reducing the interest rate from 19% to 14%, so that the interest rate was reduced by 100 points on September 23 to reach the rate of 18%, so that the Financial Policy Committee of the Central Bank continued to reduce the rate in October The first was last by 200 points, bringing the price to 16%, followed by last November 18 by about 100 basis points, bringing the interest rate to 15%, before lowering today, Saturday.
Erdogan publicly rejects high interest rates because he believes they increase inflation, and he has previously described them as "the mother and father of all evil", looking forward to reducing the annual inflation rate to 5% by the next elections scheduled for 2023.