One of the biggest surprises last week was the decision by the Central Bank of Turkey to lower the key interest rate by 200 basis points from 18% to 16%. As it couldn’t be any other way, the second in a row rate cut disappointed investor expectations and immediately caused the Turkish lira to fall to new all-time lows. On top of that, Turkish President Recep Tayyip Erdogan ordered his Ministry of Foreign Affairs to declare ten Western ambassadors – from France, Canada, Finland, the Netherlands, Denmark, Germany, New Zealand, Norway, Sweden, and the United States – ‘persona non grata’ for having supported the Turkish philanthropist, activist, and opponent Osman Kavala. Amid mounting geopolitical tensions, the Turkish lira is likely to continue its decline.
Another surprise came from the side of the Central Bank of Russia, which decided to raise the interest rate by 75 basis points, to 7.5%, in the face of rising inflation. The bank assured that its monetary policy aims to limit this risk, as well as reduce inflation to 4%. The bank expects inflation to decline to 4-4.5% in 2022 and to stay around 4% thereafter. The only problem is that tight monetary policy negatively affects the country’s economic growth. To be more precise, as a result of the increased cost of money, families will be able to consume less and companies will see their investment capacity reduced because they have to pay higher interest to finance themselves. The production of an economy is reduced and, with it, employment. As a result, we do not rule out that within a couple of months the country’s economy could face stagflation when the acceleration of inflation coexists with high unemployment rates. In fact, the worsening of the epidemiological situation or the extension of the restrictive measures, announced last week, will only add more fuel to the fire.
Likewise, we must not forget about geopolitical tensions. Last week the Sinclair Broadcast Group, one of the largest broadcasters and media companies in the United States, was the target of a cyberattack that disrupted several television stations over the weekend. In the United States, authorities came to the conclusion that the malware used in the attack was created by a Russian criminal group, Evil Corp. In the event that the link between the pirates and the Russian government will be really proven, new sanctions could take place.
Finally, talking about coronavirus, the British Government confirmed last week that it “closely follows” the appearance of the new Delta variant. According to the preliminary data, it could be between 10 and 15% more transmissible than this, which is already twice as contagious as the original SARS-CoV-2. Cases of AY.4.2 have also been found in other countries such as Russia, Israel, Portugal and the United States, and it is unclear if it may be in Spain. Hopefully, the world will be able to escape another lockdown.