The dollar exceeds 12 Turkish liras… and fear is expanding in the markets

This morning, Tuesday morning, the dollar exchange rate crossed the threshold of $12, to record Turkish lira The lowest price for the currency in its history, which is 12.3724, after cutting the interest rate last Thursday by 100 basis points, following a series of cuts made by the central bank that dropped the interest rate from 23% in September of last year to 15% today.

the impeachment of the Turkish president, Recep Tayyip Erdogan, three central bank officials last month, in addition to two central bank governors within one year, namely Murat Cetinkaya and Murat Oysal, and Shihab Kocioglu was appointed last March as the new president.

Observers believe that the Turkish president’s determination to reduce the interest rate increased market fears, which pushed the Turkish currency to decline further, recording its largest losses this year when it began, by about 7.4 liras per dollar.

Yesterday evening, Monday, the Turkish president renewed his categorical refusal to raise interest rates in his country, stressing that he will continue to combat it, describing what his country is witnessing these days of lowering interest rates offset by a sharp decline in the value of the local operation as an “economic independence war.”

Erdogan added, during a press conference after a government meeting, that the price increase resulting from the high exchange rate does not directly affect investment, production and employment, and that he prefers a competitive exchange rate because it brings an increase in investment and employment.

While Erdogan also blamed the weakness of the Turkish lira on what he said were maneuvers over the exchange rate and interest rates, he stressed that his country would emerge victorious from the war of economic independence as it did in other areas, and said: “Turkey has sufficient experience in managing financial crises, and Ankara Determined to seize the opportunities that have been presented at this critical juncture the world is going through.”

The Turkish president indicated Ankara’s plan to reduce the interest rate and that it is determined to do what is right and beneficial by focusing on investment, production, employment, and export-oriented economic policy. Excessive under the pretext of the exchange rate appreciation, and we will continue to fight against them.”

The decline in the price of the lira was reflected in gold, to record the lowest price ever, as a gram of 14-carat gold reached 386 pounds and a 21-carat gram to 580 pounds, while the price of a 24-carat gram jumped to 662 pounds, and the price of an ounce reached 1807.26 dollars.

The Central Bank continues to reduce the interest rate, with government directives and direct intervention from President Erdogan, who sees that his country is fighting an economic war against those trapped in the triangle of interest, exchange rates and inflation, considering that high interest rates cause high inflation.

After cutting the interest rate by 100 points on September 23, the Central Bank’s Financial Policy Committee continued to cut the rate last October by 200 points, bringing the rate to 16%, before declining last week to 15%.

The director of the Center for Strategic Studies in Istanbul, Mehmet Kamil Demirel, expects the Turkish lira exchange rate to continue to fluctuate, until the markets absorb and stabilize, considering that the interest rate cut is an “agreed government decision”, and it is likely that the gradual reduction will continue, “perhaps to reach about 10% in 2023”, because His country seeks to strengthen the real economy based on industry and agriculture, and it has no hope for the hot money that is frozen in bank coffers to reap profits.

In turn, Professor of Finance Firas Shabo considers that Turkey’s continued interest rate cut aims to revitalize the economy, activate investments and reduce the trade balance deficit, considering the market’s reaction to be expected and the exchange rate may not be stable for the next six months.

Shabo added to “Al-Araby Al-Jadeed” that the market’s fears increased after the president’s speech yesterday and his determination to continue lowering the interest rate to perhaps reach what was planned; Less than 10% by 2023.

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