Kavala dispute just distraction ?: Erdogan escalation pushes Lira to record low

Kavala dispute just a distraction?
Erdogan’s escalation pushes the Lira to a record low

In the conflict over the human rights activist Kavala, Erdogan ignited a new level of escalation with Germany and other countries at the weekend. Critics accuse him of only distracting from economic problems. The lira reacts promptly and crashes to a new low.

The Turkish lira fell to a new record low of 9.74 lira in early Asian trading against the dollar in the evening – after $ 9.595 on Friday evening. Over the weekend, President Recep Tayyip Erdogan escalated the conflict with Western countries over human rights activist Osman Kavala and declared the ambassadors from Germany, the USA, France and seven other Western countries undesirable.

It is not yet clear whether his words will also be followed by the expulsion of the ambassadors. In the past, Erdogan has repeatedly failed to carry out threats against foreign partners. Opposition politicians in Turkey said at the weekend that the president only wanted to use the escalation to divert attention from Turkey’s economic problems.

Meanwhile, insiders said that after the unexpectedly sharp interest rate cut 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, Reuters learned 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. Erdogan is a declared opponent of interest rates and has kicked the last of the central bank governors out due to differences in monetary policy.

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