‘Enemy’ Of Interest Rates Tempts Fate. Again
In yet another exceptionally ill-advised, albeit wholly predictable, move, Turkey cut rates again on Thursday.
The lira responded accordingly, falling to yet another fresh record low (figure below).
The latest chapter in what can only be described as a comically ridiculous saga came just a week after Recep Tayyip Erdogan purged three central bank officials deemed insufficiently convinced that the strongman's "unorthodox" (an absurd euphemism) views on rates, FX and inflation are viable.
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I hesitate to ask a question in a room full of people way smarter than me, but here goes. HR covers Turkey fairly regularly, and I’m not sure why. There’s probably a link to the financial big picture that I’m not understanding. What’s important about Turkey?
Asking a question to a roomful of people smarter than you is way better than asking a question to a roomful of people dumber than you.
H probably includes it for the comedic effect. The last time I went to Turkey, probably late 1990s, we changed some money at the airport. My wife’s calculator didn’t have enough zeroes to calculate the amount of lira we should be getting. When we arrived by taxi at the hotel and paid the bill, we knew we had paid either $4 or $40 for the cab ride, but weren’t sure which. Fortunately we figured out later it was $4. If you go to Turkey, take a calculator with lots of zeroes, it probably takes 4 or 5 more digits by now.
Thanks
I cannot speak intelligently on macro markets, but HR does tend to couch the market in terms of geopolitics. Turkey (bordering Syria, Iraq & Iran) has been undergoing some significant authoritarian trends while courting Russian defense investments & partnership. Turkey was expelled from the F-35 program 2 years ago for some of these transgressions. This has all been done while maintaining NATO status, important because Istanbul (and the Bosphorus Straight) controls access to the Black Sea for Russia (hence the whole Crimea invasion).
Turkey is walking the fence courting folks on both sides of it. Their position/stability (geographically and economically) could easily cause ripple effects across Europe.
Thanks Donny
Donny, your excellent comment disproves your first sentence 😉
Totally correct about walking the fence. Unfortunately the only one to push back against being “courted” so far has been Putin (i.e. when Turkey downed a Russian fighter jet a couple of years ago).