Coming into Friday, the Turkish lira was having a rough week.
The currency, which collapsed earlier this month after the imposition of U.S. sanctions exacerbated an already bad situation characterized by an autocratic executive who calls interest rates the “mother of all evil” and who has made good on his promise to commandeer monetary policy, was the second worst performer behind the Argentine peso coming into Friday.
Since August 13, when USDTRY was quoted as high as 7.23 following a weekend during which Recep Tayyip Erdogan dug in his heels and flatly rejected calls for rate hikes and ruled out an IMF program, Turkey’s central bank has taken a series of steps to try and stanch the bleeding. Again, they are severely hamstrung in this effort by Erdogan, who will not countenance draconian hikes to the policy rate. Instead, CBT has resorted to half-measures (e.g., swaps crackdowns) and stealth hikes.
Those efforts have met with some limited success, but with the lira down sharply on the week, they tried something else on Friday. Specifically, they’re going to raises taxes on dollar deposits and cut taxes on lira deposit accounts. Here are the specifics, for anyone who’s
- Hikes tax on up to 6-month FX deposit accounts to 20% from 18%, raises tax on FX accounts with maturities of up to 1 year to 16% from 15%
- Turkey cuts tax on lira deposit accounts to 5% from 15% for up to 6-month accounts
- Cuts tax to 3% from 12% for up to 1-year lira accounts
- Cuts tax to zero from 10% for accounts with maturities longer than 1-year
That was good for a bit of a bounce in the beleaguered currency.
Is this going to bring lasting relief? Why, no. Of course not.
On Thursday, deputy governor Erkan Kilimci left the central bank for a spot on the board of the Development Bank of Turkey. That weighed on sentiment ahead of a key meeting at which officials will be under pressure to do something – anything really – to prove that CBT retains some shred of independence. One source insisted there was nothing suspicious about the move, telling Reuters the following:
Kilimci had no disagreements with the central bank administration on any issues – including interest rates. His expertise will be employed at another public position, that’s all.
Yes, “that’s all”.
For his part, Erdogan continued to rail against international conspiracies on Friday. “[The] exchange rate has been turned into [an] exchange bullet,” he said in Balikesir, adding that the country will ultimately prevail. “This will pass”, he insisted.
He also said the case against detained Pastor Andrew Brunson is proceeding according to “the law” in Turkey. As far as Halkbank is concerned, he alluded to the potential for a fine against the lender and also to the plight of jailed banker Mehmet Hakan Atilla, calling U.S. legal actions “unprecedented”.
Read more on Halkbank and all the latest on Turkey’s ongoing crisis:
On Thursday, during a sweeping interview with Bloomberg, Trump said he was “disappointed” in Erdogan. That, after first refusing to comment on a situation the U.S. President describes as “too dear to my heart.”
Write your own jokes.