Turkey’s central bank and banks discuss rates after the pound falls

The governor of the Central Bank, Sahap Kavcioglu, declared after his meeting with the principal bankers and the banking supervisory organization BDDK of the country that the banking sector and all its actors “are very in harmony”.

The governor of Turkey’s central bank said he discussed recent interest rate cuts with bankers in a meeting Thursday after the pound fell to record levels, and he also said the banking sector was able to overcome market volatility.

The Turkish lira was stable on Thursday after falling to all-time lows this week, sparked by President Tayyip Erdogan’s defense of interest rate cuts, despite widespread criticism of his policy.

Governor Sahap Kavcioglu said after the meeting with the country’s leading bankers and banking watchdog BDDK that they had made general assessments on economic developments, and he said the banking sector was very strong.

“We informed them of everything, whether it was interest rate cuts or other issues,” Kavcioglu told reporters after the meeting. “The industry, the central bank and the BDDK are very harmonious and in strong communication.”

The pound was unchanged after the meeting, trading 0.5% firmer at 12.025 to the dollar. Before a rebound in the past two days, it hit an all-time high of 13.45 on Tuesday, down 45% this year, reaching all-time highs in 11 consecutive sessions.

Global and domestic developments, markets and developments in the banking sector were discussed at Thursday’s meeting, the Association of Turkish Banks said in a statement, calling the meeting very beneficial.

A market participant said the BDDK told the meeting that it would consider measures such as the country’s capital adequacy ratio.

The BDDK was not immediately available for comment.

Separately, officials told Reuters that Erdogan ignored calls, even from his government, to reverse the policy.

Inflation on “volatile price”

The central bank said earlier Thursday that inflation would follow a volatile course in the short term.

He made the comments in the minutes of last week’s monetary policy committee meeting, where he cut its key rate by 100 basis points to 15%. It has lowered the rate by 400 points in total since September.

“The central bank can hasten the end of this overshoot by signaling the end of rate cuts and a willingness to use hikes to defend the lira,” said a note from the Institute of International Finance.

“This would help re-anchor inflation expectations, which are rising due to the pass-through to currencies of the devaluation, increasing the risk of accelerated dollarization.” We maintain our fair value at $ 9.50 / TRY. “

Many Turks, already grappling with inflation of around 20%, fear that price increases will accelerate. Opposition politicians accused Erdogan of dragging the country into disaster.

Erdogan defended central bank policy and vowed to win its “war of economic independence”, after pressuring the central bank to go through an aggressive easing cycle in a bid to stimulate exports, investment and employment.

But many economists have called the rate cuts reckless and opposition politicians have called for an immediate election, the Turks told Reuters.

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