Turkey Heads Into Troubled Waters
Turkey’s central bank has once again cut interest rates, posting the smallest decrease of its seven-month easing cycle. However, the move may also entail a backlash as investors’ tolerance of lower borrowing costs starts to wane. The policy rate, also known as the one-week repo rate was reduced to 10.75 per cent from 11.25 per cent, the bank shared in a statement after its second Monetary Policy Committee (MPC) meeting of this year was held on 19th February.
After shedding 13.25 percentage points since July 2019, the lira is now exposed to more volatility. This is aside to the country’s unsettling geopolitical entanglements. The latest decision brings Turkey’s real interest rate to minus 1.4 per cent, below that of developed countries like Japan, Canada and the United Kingdom. Specifically, in the last month, Turkey’s currency has lost more than three per cent against the dollar. Meanwhile, the MPC made no changed to its guidance apart from cautioning on Turkey’s lending boom. The bank also stressed that it is keeping a close eye on geopolitical tensions and the coronavirus outbreak.
Within the political arena, Turkey and Russia exchanged warnings on Wednesday after Turkey’s President Recep Tayyip Erdogan, threatened an imminent operation in Syria to put an end to the regime’s brutal assault. Bombing by the Russian air force triggered the response of the Turkish military in their confrontation over the Idlib province of northern Syria. Until recently, Idlib was a safe haven for millions of Syrians seeking refuge from the government of Syrian President Bashar Assad, who is backed by Russia.
However, in his struggle to control the whole of Syria, President Assad has repeatedly engaged in brutal killing, including the rebel-held territories near Syria’s border with southern Turkey. Both countries are currently engaging in the second round of talks as President Assad’s forces took the lives of thirteen soldiers. Turkey slammed Russia’s policy of wanting to take over Idlib territory without caring for its people.
More recently, the United Nations confirmed that approximately 1,700 civilians were killed and nearly one million were displaced from the Idlib de-escalation zone in the nine months of violence led by Russia and the Assad regime. With pro-Syrian troops making its way into the Idlib area, close to 850,000 refugees have migrated north towards Turkey. The conflict threatened to send more than one million refugees- mostly women and children, into Turkey. Presently, the country has already accommodated close to four million civilians since the Syrian civil war initiated in 2011.
The two-day closed-door talks in Moscow appear futile as both parties remain inconclusive. Specifically, Turkish officials were not pleased with a Russian proposal for northwest Syria’s Idlib. Presently, all hopes are on the third round of talks which are due to take place in Ankara, Turkey next week. Yet, if negotiations fail to progress smoothly, it is likely that both countries’ presidents may meet.
By Caroline Wong
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