If the radical economic transformation (RET) faction of the ANC ever needed a real-time lesson in what happens when you play politics with monetary policy, this week’s collapse in the Turkish lira is a handy how-not-to guide. Its new central banker, Sahap Kavcioglu, is an ideological match made in heaven for President Recep Tayyip Erdogan who believes, against convention, that high interest rates are the cause of inflation, and not the remedy for it.
It is why Erdogan sacked his former bank chief, the well-regarded Naci Agbal, who had hiked rates to 19% to rein in Turkey’s rampant inflation, now at 16%. The Turkish lira, predictably, slumped 14% on Monday, while Turkey’s stock exchange lost a tenth of its value.
The fall in the Turkish lira is clearly the measure of the disdain the global investor community has for the political intervention at the central bank. The rand has been mercifully spared a consequential savaging, but it may not last: Turkey’s central bank shenanigans are hardly likely to endear traders to the emerging-market basket.
You’d think Erdogan would know that a country’s exchange rate is the present value of expectations for its future, which is affected by irresponsible decisions. But, as an honorary member of Turkey’s RET faction, it seems he couldn’t care less.
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