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Turkey in a week, September 17th

Turkey’s Central Bank made a surprisingly high rate hike on Thursday in efforts to prevent further depreciation of Turkish Lira, to secure price stabilisation and seemingly to restore credibility of the institution itself. The Central Bank of Turkey on Thursday hiked its one-week repo rate by 625 base points, raising its policy rate from 17.75 to 24%. Central Bank’s decision came as a surprise as the Bank has been unwilling to increase interest rates under the pressure of President Erdoğan. Just few hours before the central bank announced the rate hike, President Erdogan talked in Ankara and insisted that high inflation is the result of wrong steps by the central bank and the rates should not be changed. The fact that the Bank hiked the rates by 625 base points despite Erdoğan’s talk made observers think that Erdoğan had been convinced about the high rate rise, but in order to restore the bank’s credibility amid endless discussion about its independence, the play was cooked up as if the central bank had acted against Erdoğan’s will. Thanks to unexpectedly high rate rise, Turkish Lira reversed its losses during the day after Erdoğan’s talk and gained 3 percent to 6.17 against US Dollar. Turkish Lira saw as low as 6.05 against US Dollar on Friday but started to depreciate again today and it was trading at 6.28 against US Dollar now (Monday 17th). Supporting these suspicions, Finance Minister Berat Albayrak was too quick to declare that after the rate decision the discussion about the Central Bank’s independency is over. Experts suggest that Turkish companies holding high debt in foreign currency and households trying to protect the value of their savings are still not ready to turn to Turkish Lira and if high interest rates offered by Turkey will not attract foreign investors into the country, Turkish Lira can see further depreciation in coming months. The share of foreign currency deposits in total deposits is now 52 percent higher than Turkish Lira deposits suggesting strong dollarization in the country.

The week started with the newly released growth figures of the second quarter. Turkish economic growth slowed to 5.2 percent year-on-year in the second quarter. Even though Berat Albayrak described the growth data as an “economic rebalancing”, construction sector collapsed in the second quarter despite the strong push by the government just before the snap elections of June 24th. 5.2 percent increase in the second quarter came mainly from the expansion in the public expenditure and private demand. While agricultural sector contracted by 1.5 percent annually, manufactural sector’s growth is almost halved to 4.3% after 8.1 % of the first quarter. Experts think that the economy’s slow down will continue the next quarter and the country may see zero growth rate particularly after the interest rate rise. The annual growth forecasts are now down to as low as 3 percent in spite of the high growth figure of 7.4 percent in the first quarter.

Istanbul’s new airport project has been on the news since its start. The airport project is a big deal for President Erdoğan and AKP government. It has been presented by the government and pro-government media as a prestige project, which will be the biggest airport in EU with a 150 million annual passenger capacity. Istanbul New Airport is located 30 minutes from the centre of Istanbul in an area called North Woods that was heavily forested before the construction started. According to an official report 657 thousand 950 trees had been cut down by 2016 and 1 million 855 thousand trees will be cut down by the end of the project. Environmentalists have been protesting the airport since it was first proposed four years ago. The airport construction became a trending topic again on Twitter this week due to demonstrations from the airport workers against inhumane labour conditions at Istanbul’s new airport due to open on October 29th, the most important symbolic day of Turkish Republic. The workers demand very basic rights such as clean, bug free bedding, healthy food, timely payment of their salary (some workers say that they have not been paid for four months) and transportation. After the company responsible for the construction declined the demands of the workers most of which imply that the company has violated the labour law, Turkish police have detained hundreds of workers protesting over labour conditions. The demonstration became a trending topic over weekend with the hashtag #KöleDeğiliz (We are not slaves). Some columnists in the pro-government media argued even that the demonstrations are groundless and their aim is to sabotage the grand opening of the airport on October 29th.

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