Turkish central bank’s credibility on the wane for a decade -studies

Turkish central bank's credibility on the wane for a decade -studies
Turkish central bank's credibility on the wane for a decade -studies

The damage to the Turkish central bank's inflation-fighting reputation that culminated in last year's lira crisis has been years in the making, with its credibility having been progressively eroded over a full decade, two academic studies have found.

The papers by Turkish professors, including one yet to be published that analyses currency derivative market moves before and shortly after policy changes took place, offer a rare academic critique of the country's failure to rein in inflation.

Theyhighlight the role played by President Tayyip Erdogan's repeated calls forlower interest rates, which the research suggests have harmed the bank.

Last year as the Turkish lira at its worst shed half its value against the dollar and inflation hit a 15-year high above 25%. Even though the central bank hiked rates to 24% in September, many investors and economists saw the tightening as too little too late as the economy tipped into recession.

OnWednesday, the bank held rates steady again but set the stage for a cut bysignalling more confidence that inflation, which remains above 18%, was headedlower.

Erdogan,a self-described "enemy of interest rates" who has urged morestimulative monetary policies for years, publicly opposed last year's ratehikes.

Thepublic pressure from him and others to ease policy in the face of risinginflation in recent years has had a marked decrease in the probability that thecentral bank would hike rates, found one of the papers, published in August bysisters Selva Demiralp, a former U.S. Federal Reserve economist now at KocUniversity, and Seda Demiralp of Isik University.

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