At the beginning of the week, the Turkish lira fell to a new record low of 9.8545 lira against the dollar – after $ 9.74 on Sunday evening. Over the weekend, President Recep Tayyip Erdoğan escalated the conflict with Western countries over the human rights activist Osman Kavala and declared the ambassadors from Germany, the USA, France and seven other Western countries to be undesirable. Whether his words would also be followed by the expulsion of the ambassadors remained open at first.
Analysts fear that the current developments could lead to a further deterioration of the already very fragile economic situation in Turkey.
In the past, Erdoğan repeatedly failed to carry out threats against foreign partners. Opposition politicians in Turkey also said at the weekend that the president only wanted to use the escalation to distract from Turkey’s economic problems. Meanwhile, insiders expect that after the unexpectedly sharp cut in interest rates by the Turkish central bank on Thursday, the state banks would also cut borrowing costs sharply on Monday.
The three major public lenders Ziraat, Vakif and Halkbank are expected to cut interest rates on corporate, personal, mortgage and other loans by two full percentage points, the Reuters news agency learned on Sunday from people familiar with the plans. The central bank had surprisingly cut the key interest rate significantly from 18 to 16 percent. Economists had also criticized the move with a view to the inflation rate in Turkey, which recently rose to 19.6 percent.
“The rate cut policy of the central bank with rising inflation and a weakening currency is likely to exacerbate both problems by further driving capital flight and deterring investment,” said the analysts at Stratfor. One of the most important questions for investors also revolves around the independence of the central bank. Erdoğan is a declared opponent of interest rates and has kicked the last of the central bank governors out of the door due to differences in monetary policy.