Turkish President Recep Tayyip Erdogan may lose the long game of cutting interest rates after appointing a new governor to the Central Bank.
Bloomberg predicted a "total chaos" that would exacerbate Turkey's economy following the regime's decision to sack the former governor, Murat Cetinkaya.
Economists and analysts stressed that Turkey will live in a state of economic chaos as a result of Erdogan's direct intervention in the strategy of the Central Bank.
Bloomberg’s report published on Monday, July 22nd, based on a poll by economists this month, pointed out that the overthrow of Cetinkaya had nearly settled the deeper cash facilitation process in the coming quarters.
The poll also showed that new governor Murat Uysal could push the index to 19% by the end of this year, three percentage points lower than the previous month's average forecast. It could start to decline in 2021.
“Rate cuts will begin in July and probably proceed until rates fall until say, 17% or slightly lower, before the exchange rate and financial consequences wreak havoc,” Commerzbank AG analyst Tatha Ghose said in a report.
He added that the Turkish lira will fall in the coming years, due to the decision to cut the main interest rate, which will increase problems for the economy.
Turkey's economy is in dire straits. It has faced its first recession in 10 years, inflation reached 20% at the beginning of the current year, while the Turkish lira lost about a third of its value against the dollar in 2018.
Erdogan expected the Central Bank to respond to calls for a cut in interest rates after the reshuffle following the suspension of the policy, which lasted more than nine months.
Convinced that rising interest rates are causing inflation, Erdogan criticized Cetinkaya's failure to "follow instructions" and suggested that monetary policymakers would now offer stronger support to the government's economic program.
Analysts now expect a deeper contraction through the third quarter than previously forecast, before gross domestic product returns to annual growth in the final three months of 2019, Bloomberg reported.