Turkish lira slumps to new low as monetary policy angst worsens - Country's central bank expected to cut rates further t

[answerhappygod]

Turkish Lira Slumps To New Low As Monetary Policy Angst Worsens Country S Central Bank Expected To Cut Rates Further T 1 (175.66 KiB) Viewed 37 times

Turkish Lira Slumps To New Low As Monetary Policy Angst Worsens Country S Central Bank Expected To Cut Rates Further T 2 (52.31 KiB) Viewed 37 times

Turkish lira slumps to new low as monetary policy angst worsens - Country's central bank expected to cut rates further this week despite inflation above 20%, by Laura Pitel in Ankara DECEMBER 13 2021 Turkey's lira fell to a record low, breaching 14 to the dollar, as investors braced themselves for President Recep Tayyip Erdogan pushing on with another interest rate cut later this week despite intense inflation. The currency, which has fallen about 40 per cent since the central bank embarked on a rate-cutting cycle under Erdogan's orders in September, on Monday crossed a threshold that authorities had previously appeared reluctant to tolerate. The Turkish Lira (TL) tumbled as much as 5 per cent to 14.62 against the US dollar in London dealings on Monday, before recovering to about TL 14 per US dollar. The currency started 2021 at roughly TL7. The renewed selling came after Erdogan's increasingly unorthodox approach to running Turkey's $795bn economy led the rating agency S&P to downgrade its outlook on the country to negative at the end of last week, meaning that its rating of Turkish sovereign debt could be cut deeper into junk territory. [...] Erdogan, a staunch opponent of high interest rates, has declared in recent weeks that he is seeking to implement a new economic model for his nation of 83m people. By cutting rates, he argues, the country will benefit from a competitive currency that will boost exports, attract foreign direct investment and create employment. Economists warn that it will come at the cost of exacerbating inflation that was already growing at an annual rate of 21 per cent last month, according to official data, and hitting living standards. It also risks financial instability in a country that is heavily reliant on foreign financing to keep its economy afloat. The US investment bank Goldman Sachs said the need to raise — rather than cut - interest rates was "even more acute" this month as it argued that the current approach was “not sustainable”. “Nevertheless, the authorities appear committed to maintaining a low rate policy," it added. The consensus expectation among analysts is that the central bank will cut its benchmark lending rate by 1 percentage point to 14 per cent on Thursday. [...] On Monday, Turkey's central bank announced it had intervened in the currency market for the fourth time so far in December. The bank had sold an estimated $2bn to $3bn on the three earlier occasions, according to Barclays. [...]
A) What kind of underlying exchange rate regime is implied in the article? Provide a short explanation and comparison of advantages and disadvantages of floating and fixed exchange rate regimes in your answer. [15 marks] B) Consider the scenario described in the article and focus on one changing factor at the time (ceteris paribus), explain how monetary policy intervention by the Turkish central bank recently influenced the exchange rate of the Turkish Lira versus the US$. Use a diagram in your answer. [30 marks] C) Consider the scenario described in the article and focus on one changing factor at the time (ceteris paribus), explain how the open market intervention by the Turkish central bank might influence the exchange rate of the Turkish Lira versus the US$. Use a diagram in your answer. [30 marks]