The dispute with America over the Ottoman massacre of Armenians more than 100 years ago and the central bank governor’s new critical comment on interest rate policy caused a stir in the financial markets of Turkey at the start of the week.

Things are not going well in Turkey.

Dhe Turkish national currency, the lira, lost dramatically in value at the beginning of the week. 10.27 lira had to be paid for one euro – more than ever before. Against the dollar, the lira is trading at 8.48 lira, not far below its November low of 8.58. As on the bond market, prices also initially continued to decline on the stock exchange. During the course of the day, the rates were able to recover to the previous day’s level: around noon, the dollar was valued at 8.33 lira, the euro at 10.06 lira.

In the market, two main reasons were given for the highly volatile development: the political tensions with America, where President Joe Biden had branded the Ottoman massacre of the Armenians 100 years ago as genocide to the indignation of Turkey, and the new statements Central bank governor that rate hikes are bad for the economy. Since Sahap Kavcioglu was appointed governor of the central bank a month ago, the lira has lost more than 20 percent of its value.

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Despite the impressive rally at the beginning of the year, when the then central bank chief, who was only appointed in November, fought high inflation by raising key interest rates, the lira thus performed the worst compared to other emerging market currencies. The corona situation, which continues to be tense with more than 50,000 new infections every day, as well as the turbulence surrounding two collapsed crypto exchanges with dozens of arrests, account freezes and alleged losses in the millions, did not help to consolidate the ailing trust in Turkey as a financial location.

Central bank governor Sahap Kavcioglu had said late Friday that although he would tighten monetary policy for the time being, every rate hike would send a bad message to the real economy. “Who is happy with the high interest rates?” He asked in his first television interview as governor. Its first press conference is expected this Thursday.

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President Recep Tayyip Erdogan also rejects high interest rates. He fired the last head of the central bank after he had raised the key interest rate by 2 percentage points to 19 percent on March 20. Since then, international investors have withdrawn $ 2.4 billion from the country, according to data from the central bank. The inflation rate, which was also fueled by the weak currency, was recently at 16.2 percent, but the official unemployment rate of 13.4 percent is likely to underline the true situation on the labor market.

Financial analysts expect the bank to start cutting interest rates in the middle of the year. Others speculate that Kavcioglu could try to support the lira by selling foreign exchange reserves. However, these have already melted considerably due to similar attempts that failed earlier.

The Turkish opposition had recently made this an issue by asking the government where 128 billion dollars in foreign exchange reserves had gone. Kavcioglu defended the sale in the face of the “attacks” on the lira that began in 2018. At the time, a deep dispute with the United States over the still unresolved issue of the NATO partner Turkey’s purchase of Russian missile systems had led to a political crisis that had an impact on the currency and financial situation.