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A logo of Turkey's Central Bank is pictured at the entrance of its headquarters in Ankara, Turkey October 15, 2021. REUTERS/Cagla Gurdogan/File Photo

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LONDON/ISTANBUL, Nov 17 (Reuters) - Turkey's central bank is expected to deliver more interest rate cuts on Thursday - a move that President Tayyip Erdogan will likely cheer but which analysts warn could lift inflation higher and accelerate the demise of the lira.

The currency has suffered a steep selloff in the run up to the bank's policy decision expected at 2 p.m. (1100 GMT) on Thursday, slumping more than 6% in November and crashing through the 10 to the dollar watershed to a new record low.

Here are four questions facing the central bank, which has slashed policy rates by 300 basis points since September:

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1/WHAT WILL THE CENTRAL BANK DO?

Turkey is expected to reduce its policy rate by 100 basis points to 15%, according to a Reuters poll. read more

While inflation is at 2-1/2 year highs, analysts predict October's lower-than-expected reading increased the likelihood of a cut, although some caution the speed of the lira's recent tumble may stay the bank's hand.

Erdogan holds the unorthodox view that lower rates will tame inflation and ousted the last three central bank chiefs over a 20-month span due to policy disagreements.

Governor Sahap Kavcioglu, appointed in March, ended months of hawkish talk in September when he laid the groundwork for easing. The central bank acknowledged last month there was limited room for further monetary policy easing by year-end.

However, recent cuts have shredded any remaining investor confidence in the bank's independence.

Erdogan, a self-described enemy of interest rates, has his eyes firmly on elections to be held no later than mid-2023. With his popularity slipping in opinion polls, the pragmatic president could rethink his push for monetary stimulus - or refuse to back down despite the lira pain.

2/HOW LONG CAN TURKEY PLAY THIS GAME?

Cutting rates despite double-digit inflation and a tumbling currency is dangerous, say analysts.

"Unless we see a significant policy reversal in Turkey any time soon, the country looks set to head into its third currency crisis since 2018," said Erik Meyersson, a Stockholm-based senior economist at Handelsbankenan who specialises in Turkey.

Turkey has far less ammunition to defend the currency than in previous years with foreign exchange reserves falling. Central bank reserves in Q2 covered fewer than three months worth of imports, down from 4.5 in 2019.

But Turkey may not be able to cut much further, especially with central banks globally, including the U.S. Federal Reserve, preparing to tighten policy to curb inflation.

"Going forward, we don't think that the current policy mix is sustainable and rates will eventually need to go higher," Goldman Sachs analysts said, forecasting rates to fall to 15% by year-end followed by 300 basis points of hikes in the second half of 2022.

Another risk is the large volume of short-term dollar-denominated debt Turkey must repay.

3/WHERE IS INFLATION HEADED?

Annual inflation rose to 19.89% in October - four times the central bank's target, although it argues price pressures are temporary. Policymakers recently shifted emphasis to core inflation, which stood at 16.83%.

Global pressures from soaring post-pandemic demand, supply chain disruptions and an energy price rally have exacerbated pressures from the weak lira.

Producer prices soared 46.31% year-on-year in October, suggesting inflation should remain elevated for several more months. Deutsche Bank predicts headline inflation will stay above 20% in the first half of next year and end 2022 at 16%.

4/ WHAT IS ERDOGAN'S ENDGAME?

Rampant inflation and the tumbling lira have hit Turkish consumers hard, eating into earnings. This has unnerved Erdogan, whose conservative AK Party has ruled for 19 years on a reputation for delivering a strong economy and household wealth.

Erdogan's gamble is that rate cuts will boost the economy by supporting lending, exports and jobs. Economists say exports are unlikely to benefit from a weaker currency because of companies' high foreign debts.

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Reporting by Tommy Wilkes in London and Jonathan Spicer in Istanbul, editing by Karin Strohecker and Richard Pullin

Our Standards: The Thomson Reuters Trust Principles.

Original post:
Will Erdogan get more cuts? Four questions for Turkey's ...

Recep Tayyip Erdogan has held power in Turkey for almost 20 years, first as prime minister, then as President. With inflation soaring and his currency collapsing, Erdogans eccentric ideas about economic policy seem to have made a bad situation worse but what if we saw things from his perspective? We steal a memo on Erdonomics from deep inside the Turkish Presidential Palace.

From: the Desk of His Excellency, Recep Tayyip Erdogan, President of Turkey

My Dear Turks,

I write this with a heavy heart, but a very fine pen.

We have seen large scale public borrowing, a currency crash, runaway inflation, and resignations from the Central Bank because its leaders wanted to lower interest rates.

No, my friends, I am not talking about the past few months, a scene painted by biased Western media, which even doubts that I got a college degree (of course I did, though nobody seems to believe me, but I digress).

Rather, I am referring to the dark days of 1994, when you voted for me as mayor of Istanbul.

The financial crisis which we were experiencing then had crippled us. I drew you out of that mess by throwing everything I could at beautifying Istanbul. I brought you green buses, I built you recycling plants. I even gave you my email address in order to let you have a direct role in governance. Surely, my experiment changed Istanbul, the City of Centuries. Thus, I decided to rule for centuries.

But not without challenges. When you voted me in as prime minister in a 2002 landslide, we were crippled by another financial crisis, thanks to the ineptitude of those I had replaced: the lira was totally out of control, confidence in the economy was so low that almost two-thirds of bank accounts were held in foreign currencies, and allegations of corruption against the former leadership had weakened our great nation. Of course, no such aspersions whether about corruption, mismanagement or desperate dollarization can be cast against my current government. I repeat, none!

Lets travel back to those early days. When I took over, things changed immediately. We bounced back, like the great Ottomans did after their mediocre European campaigns (unfortunately, our own recent European campaigns have been thwarted by continental arrogance and conspiracy). But back to that golden era during my first term: under my watch GDP almost tripled in just four years, foreign direct investment boomed, and unemployment and inflation dropped to record lows.

My dear friends, you didnt appreciate what a good thing you had going for you.

You were thankless. You protested against progress. So, I pushed back. And when your Western backers didnt take a hint, and attempted an extra-constitutional coup, I fought back with a constitutional one that made things right, and put me properly in charge.

Now, you and your friends are at it again, doubting my plans for our economic revival.

My dear Turks, as I said at parliament recently, both the Quran and I can assure you: with lower interest rates come fewer worries and more borrowing and spending! If we shed the evil of usury, you will be self-sufficient and produce more exports. Growth will follow, Inshallah!

I want to put your money where my mouth is: in my personal resolve to cut interest rates, I have even kept every scissor I have ever used on display. After all, my economics are built on family and friends, on liberating our workers, and fighting a war of economic independence.

Trust me, brothers and sisters. My plan, based on theories by economists old and new, now depends on you. I will guarantee a return on your deposits, but only if your deposits are in liras. Things are already in motion for your benefit: price hikes have been offset by an increase in your wages. Foreigners are returning, the lira is already bouncing back, even though I had to sell billions of dollars to intervene.

And whats a little lira weakness if it helps us to export to the world the wonderful things we make, eh? Wouldnt our African brothers, also victims of Western predators, be safer with more of our armed drones? Remember, my friends: we are in the midst of the Learned Helplessness Syndrome. The independence of the Central Bank is overrated, and not necessary for those who love their country! Orthodoxy is slavery! We will break these shackles! Cok yaa Trkiye!

And do not forget, there is such a thing as Turkish exceptionalism. It was Turks who invented the COVID vaccine (even though they were in Germany). It is the Turks who are doing the most to stop Russia from invading Ukraine. It is the Turks who will help stabilize our brothers in Africa. Even Elon Musk not a Turk but still a nice man who considered it an honor to meet me has promised to enhance our search for the stars, by putting our satellite into space.

We are a great nation, my friends. Weve seen these bread lines before. But these Western reports about hunger and desperation are getting old. I am convinced that, after I stop a run on the banks, when all of this is over, we will be a breakout star. I urge you: dont believe the naysayers. Borrow freely, spend abundantly, enjoy life and dont forget to vote in 2023!

Excerpt from:
In Erdogans shoes: What is he thinking? - GZERO Media

There has been no idea any any agreement on a meeting with Turkeys President Regep Tayyip Erdogan, Prime Minister Nikol Pashinyan said at an online press conference today.

He added, however, that if the discussions between the special representative go ahead successfully and the process matures to that point, meetings on high and highest level will naturally follow.

It will definitely take place if the process goes successfully, the Prime Minister said.

He added, however, that the date of the meeting of the special representatives is yet to been agreed. The Prime Minister said it will be a definitely be a lengthy process, not one, two or three meetings, and added that there should not be exaggerated expectations.

As for the recognition of the Armenian Genocide, PM Pashinyan said it has never been a precondition for normalization of relations with Turkey.

The Armenian side, all authorities without exception have said that they are ready to normalize relations with Turkey without preconditions, which means that the recognition of the Armenian Genocide has not been a precondition for normalization of diplomatic relations and opening of borders, the Prime Minister said.

He added, however, that the stance on the international recognition of the Armenian Genocide is enshrined in the Governments program.

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No agreement on meeting with Erdogan, Armenian PM says Public Radio of Armenia - Public Radio of Armenia

Command? Dear Mr President, surely as one who aspires to be a Muslim hero you have read the Quran. Therein stands the clear injunction: Allah has permitted trade and has forbidden interest/usury (2:275). Forbidden here does not mean negotiating what is low or middle or high forbidden means zero, exactly zero. Haram is haram. This is why all early Muslim scholars rejected interest. Many scholars still do today, particularly Arabs and Pakistanis. In 2014, the top ulema of Pakistan belonging to the Fiqhi Majlis said that even the so-called Sharia-compliant Islamic banking merely renames interest as profit and, as such, is deception. All banking, they concluded, is haram. Historically, banking was absent in Muslim countries until the 18th century because nothing except zero interest can be allowed. The Ottoman rulers of Turkey were, however, not ideologues. As pragmatists who ran an empire, they broke the ban on banking because they well knew that no banking meant no trading. This Western innovation had to be adopted come what may. But, to be safe, they first looked around for muftis who could justify European banking and found some. One can endlessly debate whether these justifications are genuine or manufactured.

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Erdogan and Imran are letting emotions run far ahead of reason - Times of India

Turkish President Tayyip Erdogan gives a statement after a cabinet meeting in Ankara, Turkey, May 17, 2021.

Murat Cetinmuhurdar | Reuters

Turkey's lira fell to a fresh record low on Monday after President Recep Tayyip Erdogan said he was pursuing the expulsion of 10 foreign ambassadors.

The beleaguered currency was trading at 9.738 to the dollar at 11.45 a.m. London time on Monday, hitting an all-time low of 9.82 to the dollar earlier in the day.

Erdogan declared during a rally on Saturday that he had demanded the status of "persona non grata" be applied to the ambassadors of the U.S. and nine other Western countries after they called for the release of Turkish philanthropist Osman Kavala from prison.

The lira, having already hit a record low the previous week after Turkey's central bank cut its key interest rate despite growing inflation, is in for more pain if Erdogan continues on this path, analysts warned. It's fallen 24% versus the dollar so far this year.

"If Erdogan's threat is carried out it would trigger the worst crisis between Turkey and the Western world since the AKP got into power in 2002," Teneo co-President Wolfango Piccoli wrote Monday, referencing the president's political party.

Observers note that the Foreign Ministry has not yet appeared to carry out Erdogan's instructions, as "none of the diplomats has been formally notified," Piccoli wrote. Turkish Foreign Minister Mevlut Cavusoglu, responsible for carrying out the order, has not yet commented on the matter.

Erdogan's comments boosted fears of heightened tensions between the West and Turkey, hitting the already weak lira. Investors have long been concerned about the central bank's lack of independence from Erdogan, who has said that interest rates are "the devil" and holds the unconventional belief that cutting them will reduce inflation the opposite of what most economists say is the case.

If the ambassadors were to be expelled, "the lack of Western diplomatic representative in Ankara will hurt Erdogan," said Timothy Ash, emerging markets strategist at BlueBay Asset Management. "The 10 will reduce interaction with the Erdogan regime and investment into Turkey will suffer."

The 10 countries whose ambassadors were targeted by Erdogan the U.S., Canada, France, Germany, Denmark, Norway, Sweden, Finland, New Zealand, and the Netherlands account for half of Turkey's top 10 trading partners. The group also includes seven NATO members and six EU members.

"It goes without saying that the beleaguered Turkish Lira would fall under intense pressure, after setting various record lows over the past week," Teneo's Piccoli added.

See more here:
Turkish lira hits record low as Erdogan aims to expel ...