Erdogan Takes Another Swipe at Lira with His Defense of Low Rates

A money changer holds Turkish lira banknotes at a currency exchange office in Ankara, Turkey September 27, 2021. (Reuters)
A money changer holds Turkish lira banknotes at a currency exchange office in Ankara, Turkey September 27, 2021. (Reuters)
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Erdogan Takes Another Swipe at Lira with His Defense of Low Rates

A money changer holds Turkish lira banknotes at a currency exchange office in Ankara, Turkey September 27, 2021. (Reuters)
A money changer holds Turkish lira banknotes at a currency exchange office in Ankara, Turkey September 27, 2021. (Reuters)

Turkey's beleaguered lira skidded 4% on Friday after President Recep Tayyip Erdogan doubled down on his low-rates policy that has been widely criticized, capping a volatile week in which the currency plunged to all-time lows.

Erdogan's promise to ease monetary policy and defend Turks from being "trampled" by high interest rates sent the lira to as far as 12.628 versus the dollar in a late-session slide at 1428 GMT.

The currency has lost as much as 45% of its value this year, with around half of those losses since the start of last week alone.

It hit 13.45 in a historic 15% selloff on Tuesday that was triggered by two other speeches by Erdogan in the last 10 days in which he has defended the central bank move to slash its policy rate to 15%, despite inflation of 20%.

The lira's spiral has upended household spending plans, disrupted the supply of some medications and briefly halted the sales of some other imports like cellular phones.

Many economists and opposition lawmakers have called for an immediate policy reversal and elections, while the government is increasingly standing by Erdogan's push for monetary stimulus despite the risks, including a sharp erosion of Turks' earnings.

The deputy finance minister and central bank said that inflation - which is expected to rise higher - would soon settle and that the monetary easing had helped boost commercial loans.

"These interest rates will come down. We will not let our people or our farmers be trampled by interest rates," Erdogan said, adding Turkey is committed to its new economic policy that stresses production, employment and a current account surplus.

Speaking in the Aegean coastal province of Izmir, Erdogan repeated that he opposes the notion of support from the International Monetary Fund or World Bank.

"It is hard to see how Turkish policymakers will come out of this given an unwillingness to engage in more orthodox policies," said Magdalena Polan, principal economist, Central Europe and Middle East, PGIM Fixed Income.

She said measures would have to be taken: either a rate hike and more credible policies; or non-orthodox steps as used in the past - the risk of which was increasing.

Economists say the currency depreciation will send inflation, already four times the official target, toward 30% next year. It will hit a three-year high of 20.7% in November, a Reuters poll found.

No turning back

Officials have told Reuters that Erdogan had ignored appeals, even from within his government, to reverse policy. Instead, he has defended the stance and vowed to win an "economic war of independence".

Deputy Finance Minister Nureddin Nebati said "there is no issue" with the policy rate lower than the inflation rate, despite the deeply negative real yield.

"We need to evaluate Turkey's economy from a bigger window, rather than a narrow perspective only taking the exchange rate as a basis," he said late on Thursday on Twitter.

Revenue earned from the low rates would be directed to key imports such as energy, Nebati added. "The manipulative attacks waged on the Turkish lira over our low rate policy will not seriously damage our economy."

Nebati's boss, the Treasury and Finance Minister Lutfi Elvan, who is seen as following orthodox policy, has kept mostly out of the spotlight in recent months and there has been speculation he could be ousted. The Palace has not commented.

Asked about the speculation, Meral Aksener, leader of the opposition IYI Party, told Turkey's FOX TV that Nebati appears likely to be succeed Elvan, which could again undercut the lira.

Central Bank Governor Sahap Kavcioglu met banking sector officials on Thursday evening and discussed the rate cuts with them, saying they were working in harmony with the sector.

On Friday, the central bank said revisions in its monetary policy stance since September had started a recovery in commercial loan growth.



IMF and Arab Monetary Fund Sign MoU to Enhance Cooperation

The MoU was signed by IMF Managing Director Dr. Kristalina Georgieva and AMF Director General Dr. Fahad Alturki - SPA
The MoU was signed by IMF Managing Director Dr. Kristalina Georgieva and AMF Director General Dr. Fahad Alturki - SPA
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IMF and Arab Monetary Fund Sign MoU to Enhance Cooperation

The MoU was signed by IMF Managing Director Dr. Kristalina Georgieva and AMF Director General Dr. Fahad Alturki - SPA
The MoU was signed by IMF Managing Director Dr. Kristalina Georgieva and AMF Director General Dr. Fahad Alturki - SPA

The International Monetary Fund (IMF) and the Arab Monetary Fund (AMF) signed a memorandum of understanding (MoU) on the sidelines of the AlUla Conference on Emerging Market Economies (EME) to enhance cooperation between the two institutions.

The MoU was signed by IMF Managing Director Dr. Kristalina Georgieva and AMF Director General Dr. Fahad Alturki, SPA reported.

The agreement aims to strengthen coordination in economic and financial policy areas, including surveillance and lending activities, data and analytical exchange, capacity building, and the provision of technical assistance, in support of regional financial and economic stability.

Both sides affirmed that the MoU represents an important step toward deepening their strategic partnership and strengthening the regional financial safety net, serving member countries and enhancing their ability to address economic challenges.


Saudi Chambers Federation Announces First Saudi-Kuwaiti Business Council

File photo of the Saudi flag/AAWSAT
File photo of the Saudi flag/AAWSAT
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Saudi Chambers Federation Announces First Saudi-Kuwaiti Business Council

File photo of the Saudi flag/AAWSAT
File photo of the Saudi flag/AAWSAT

The Federation of Saudi Chambers announced the formation of the first joint Saudi-Kuwaiti Business Council for its inaugural term (1447–1451 AH) and the election of Salman bin Hassan Al-Oqayel as its chairman.

Al-Oqayel said the council’s formation marks a pivotal milestone in economic relations between Saudi Arabia and Kuwait, reflecting a practical approach to enabling the business sectors in both countries to capitalize on promising investment opportunities and strengthen bilateral trade and investment partnerships, SPA reported.

He noted that trade between Saudi Arabia and Kuwait reached approximately SAR9.5 billion by the end of November 2025, including SAR8 billion in Saudi exports and SAR1.5 billion in Kuwaiti imports.


Leading Harvard Trade Economist Says Saudi Arabia Holds Key to Success in Fragmented Global Economy

Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
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Leading Harvard Trade Economist Says Saudi Arabia Holds Key to Success in Fragmented Global Economy

Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).
Professor Pol Antràs speaks during a panel discussion at the AlUla Conference for Emerging Market Economies (Asharq Al-Awsat).

Harvard University economics professor Pol Antràs said Saudi Arabia represents an exceptional model in the shifting global trade landscape, differing fundamentally from traditional emerging-market frameworks. He also stressed that globalization has not ended but has instead re-formed into what he describes as fragmented integration.

Speaking to Asharq Al-Awsat on the sidelines of the AlUla Conference for Emerging Market Economies, Antràs said Saudi Arabia’s Vision-driven structural reforms position the Kingdom to benefit from the ongoing phase of fragmented integration, adding that the country’s strategic focus on logistics transformation and artificial intelligence constitutes a key engine for sustainable growth that extends beyond the volatility of global crises.

Antràs, the Robert G. Ory Professor of Economics at Harvard University, is one of the leading contemporary theorists of international trade. His research, which reshaped understanding of global value chains, focuses on how firms organize cross-border production and how regulation and technological change influence global trade flows and corporate decision-making.

He said conventional classifications of economies often obscure important structural differences, noting that the term emerging markets groups together countries with widely divergent industrial bases. Economies that depend heavily on manufacturing exports rely critically on market access and trade integration and therefore face stronger competitive pressures from Chinese exports that are increasingly shifting toward alternative markets.

Saudi Arabia, by contrast, exports extensively while facing limited direct competition from China in its primary export commodity, a situation that creates a strategic opportunity. The current environment allows the Kingdom to obtain imports from China at lower cost and access a broader range of goods that previously flowed largely toward the United States market.

Addressing how emerging economies should respond to dumping pressures and rising competition, Antràs said countries should minimize protectionist tendencies and instead position themselves as committed participants in the multilateral trading system, allowing foreign producers to access domestic markets while encouraging domestic firms to expand internationally.

He noted that although Chinese dumping presents concerns for countries with manufacturing sectors that compete directly with Chinese production, the risk is lower for Saudi Arabia because it does not maintain a large manufacturing base that overlaps directly with Chinese exports. Lower-cost imports could benefit Saudi consumers, while targeted policy tools such as credit programs, subsidies, and support for firms seeking to redesign and upgrade business models represent more effective responses than broad protectionist measures.

Globalization has not ended

Antràs said globalization continues but through more complex structures, with trade agreements increasingly negotiated through diverse arrangements rather than relying primarily on multilateral negotiations. Trade deals will continue to be concluded, but they are likely to become more complex, with uncertainty remaining a defining feature of the global trading environment.

Interest rates and artificial intelligence

According to Antràs, high global interest rates, combined with the additional risk premiums faced by emerging markets, are constraining investment, particularly in sectors that require export financing, capital expenditure, and continuous quality upgrading.

However, he noted that elevated interest rates partly reflect expectations of stronger long-term growth driven by artificial intelligence and broader technological transformation.

He also said if those growth expectations materialize, productivity gains could enable small and medium-sized enterprises to forecast demand more accurately and identify previously untapped markets, partially offsetting the negative effects of higher borrowing costs.

Employment concerns and the role of government

The Harvard professor warned that labor markets face a dual challenge stemming from intensified Chinese export competition and accelerating job automation driven by artificial intelligence, developments that could lead to significant disruptions, particularly among younger workers. He said governments must adopt proactive strategies requiring substantial fiscal resources to mitigate near-term labor-market shocks.

According to Antràs, productivity growth remains the central condition for success: if new technologies deliver the anticipated productivity gains, governments will gain the fiscal space needed to compensate affected groups and retrain the workforce, achieving a balance between addressing short-term disruptions and investing in long-term strategic gains.