Turkey's finance minister says interest rates will not be raised

The Turkish lira has once again hit an all-time low. The expected further cut in the Turkish central bank's benchmark interest rate has triggered a further decline, bringing the exchange rate with the dollar below 14 lira. This follows last Friday's intervention by the same entity, which argued that it "intervenes directly in the market through sale transactions due to unhealthy price formations in exchange rates". However, this announcement has not prevented a new collapse of the Turkish currency, which has already lost 48% of its value against the dollar this year.

Recep Tayyip Erdogan appointed Nureddin Nebati as Turkey's new finance minister after the resignation of Lutfi Elvan. Inflation, soaring to 20 percent, has caused the cost of living to rise exponentially, putting thousands of Turkish families in dire financial straits. To reverse this disastrous financial reality, the ministry now headed by Nebati is expected to take new measures. For the moment, it has ruled out raising interest rates, something that had been speculated upon the minister's arrival: "We will not raise the interest rate; you will see that we can do this without raising rates," said Nureddin Nebati. 

The Ottoman president is putting great pressure on the central bank to reduce borrowing costs. Meanwhile, the government blames speculative movements within its borders. Nebati himself believes that there are "some manipulative and speculative transactions within the country", since, he says, the lira is not under attack from outside. However, the words of both the new minister and Erdogan are having a counterproductive effect on the Turkish economy. Every time the president talks about the "economic war" the country is waging, markets respond negatively against the lira.

Interest rate cuts have also failed to counter the steady decline. Just under a month ago, it was cut by 100 basis points, bringing the currency's price decline since the summer alone to 400 basis points. At the time, Erdogan said that "interest rates are the cause, and inflation is the result", reaffirming a stance that runs completely counter to that being followed in most of the world's economies. 

Despite the new finance minister's statements, experts warn that there is no alternative if Turkey's economy is really to emerge from the complex situation it is going through. Tim Ash, market strategist at BlueBay Asset Management for the Financial Times, warned in mid-November that "surely the (Central Bank) cannot cut rates today, not even a maintenance would be enough, they have to raise them, and aggressively". Recep Tayyip Erdogan's government is therefore on the ropes, unless they decide to change a stance that continues to weigh on the economy of the whole country.