Spare a thought for Erdem Basci, Turkey’s central-bank governor, says Edward Hadas on breakingviews.com. He is walking a tightrope in his efforts to support both the country’s currency, the lira, which is now at record lows against the dollar, and the economy.
Sputtering growth argues for an immediate interest-rate cut, but rising inflation and the ongoing need to attract foreign capital to fund the country’s current-account deficit demand just the opposite.
To make matters worse, Basci is being berated by Recep Tayyip Erdogan, Turkey’s increasingly autocratic and eccentric president, for falling under the influence of a foreign “interest-rate lobby”, continues Hadas. Erdogan believes that this lobby is making Basci keep rates high and he “seemingly does not understand how much Turkey needs foreign confidence”.
Erdogan, who appears to think that high interest rates cause inflation, rather than vice versa, may have to learn the hard way, says Daniel Dombey in the FT. Foreign investors could rush out, sending the currency crashing, inflation rocketing, and requiring even higher interest rates to win back foreign confidence. It all adds up to another headache for emerging-market investors.