Central Bank Governor Sahap Kavcioglu said after his meeting with top bankers and the country’s BDDK bank watchdog that the banking sector and all its players ‘are very much in harmony’.
Turkey’s central bank governor said he discussed recent interest rate cuts with bankers at a meeting Thursday after a drop in the lira to record lows, and he also said the banking sector was able to overcome market volatility.
Turkey’s lira was flat Thursday after a historic drop to record lows this week, triggered by President Tayyip Erdogan’s defense of interest rate cuts, despite widespread criticism of his political direction.
Governor Shap Kavcioglu said after the meeting with top bankers and the country’s BDDK bank watchdog that they made general evaluations of economic development, and he said that the banking sector was very strong.
“We informed them of everything, whether it was interest rate cuts and other issues,” Kavcioglu told reporters after the meeting. “The sector, the central bank and BDDK are very much in harmony and in strong communication.”
The lira was unchanged after the meeting and traded 0.5 percent firmer at 12.025 against the dollar. Before a recovery in the last two days, it hit a record low of 13.45 on Tuesday, a drop of 45 percent this year, reaching record lows in 11 consecutive sessions.
Global and domestic developments, markets and banking developments were discussed at Thursday’s meeting, the Association of Turkish Banks said in a statement describing the meeting as very beneficial.
One market participant said that BDDK told the meeting that it would consider measures such as the country’s capital adequacy ratio.
BDDK was not immediately available for comment.
Separately, officials told Reuters that Erdogan had ignored appeals, even from his government, to reverse the policy.
Inflation on ‘volatile exchange rate’
The central bank said earlier Thursday that inflation would follow an unstable course in the short term.
It made the comments in the minutes of last week’s meeting of the Monetary Policy Committee, where it lowered its key interest rate by 100 basis points to 15 percent. It has lowered the course by a total of 400 points since September.
“The central bank can speed up the end of this overrun by signaling an end to interest rate cuts and a willingness to use increases to defend the lira,” reads a note from the Institute of International Finance.
“This would help re-anchor inflation expectations, which are rising due to currency flows from devaluation, increasing the risk of accelerated dollarization. We maintain our fair value of $ / TRY 9.50.”
Many Turks, who are already struggling with inflation of around 20 percent, fear that price increases will accelerate. Opposition politicians have accused Erdogan of dragging the country towards disaster.
Erdogan has defended central bank policy and promised to win its “war of economic independence” after pressuring the central bank to move into an aggressive cycle of easing with the aim of increasing exports, investment and jobs.
But many economists have described the rate cuts as ruthless, and opposition politicians called for immediate elections, Turks told Reuters news.