In farewell visit to Turkey, outgoing chancellor says security and independence of both countries depend on each other.
Turkey’s lira sank to a new all-time low against the dollar on Monday and analysts saw little reprieve ahead given what one called expectations of an “irrational” interest rate cut later this week.
The worst performer in emerging markets this year, the Turkish currency touched a low of 9.35 against the dollar before closing at 9.34.
It has shed 20 percent this year and half of the depreciation has come since early last month, when the central bank began giving dovish signals despite inflation rising to near 20 percent.
President Recep Tayyip Erdogan has long called for monetary easing and his influence, including rapidly replacing the central bank’s top leadership, is seen to have eroded policy credibility in recent years.
After last month’s shock 100-point rate cut sent the lira tumbling, economists polled by the Reuters news agency were split over whether the central bank would ease by another 50 or 100 basis points at a Thursday policy meeting.
Some economists declined to respond to the poll given how unpredictable the central bank had become, especially after Erdogan sacked three of its monetary policy committee (MPC) members last week, including two seen as opposed to rate cuts.
“In the end the decisions on … monetary policy are no longer taken by the central bank itself but are taken in the President’s Palace,” said Commerzbank analysts.
Societe Generale predicted a 100-point cut followed by a pause by the central bank as the lira slides to 9.8 versus the dollar by year-end.
After his latest central bank shake-up, Erdogan “has effectively removed all opposition to his unorthodox view that high interest rates cause high inflation”, SocGen analysts wrote in a client note.
Despite the “irrationality” of further rate cuts now, “there is no longer any point to ascribing traditional economic arguments in considering the [central bank’s] likely course of action,” they wrote.