LET’S CONTINUE WITH THE INTEREST RATE̞FX RELATIONSHIP

There is a close but inverse relationship between the interest rate and foreign exchange (FX) rates as well as price movements. FX rates relatively decline when interest rates increase. FX rates accelerate when interest rates are kept low. Interest rates are not the only thing affecting FX rates. A series of external factors can come to the fore. In such a case, the most effective tool in the shortest time is to raise the interest rate as a way to increase the value of the TRY. FX rates climbed due to the ‘pastor’ crisis in 2018. We increased the interest rate in Q4 2018 and kept it until autumn 2019. Thus, FX rates nearly kept a horizontal course. The interest rate was cut in 2020. The monthly average of the weighted average cost of the Central Bank’s (CB) funding fell to 7.55% in July, although the policy rate was at 8.25%. The interest rate was increased, the discourse changed, and FX rates started to decline after the ‘known’ CB operation in November 2020. The interest rate remained unchanged and FX rates started to rise again after another CB operation in March 2021. The interest rate, FX rates and price movements are released by official authorities. Our contribution is only to gather and collect these values and make them comparable. Yet, some people can find fault with them in their wisdom.