Turkish interest rate rise brings Erdoganomics down to earth

Mae Love
September 13, 2018

The logo of Turkey's Central Bank sits at the entrance of its headquarters in the capital, Ankara.

He criticised the central bank, saying it had consistently miscalculated inflation targets and again portrayed the currency crisis as a foreign conspiracy.

The bank raised the one-week repo rate to 24 percent, meaning it has now increased interest rates by 11.25 percentage points since late April, in an attempt to put a floor under the tumbling lira.

Rising U.S. interest rates have discouraged the riskier reach for yield, deepening home-grown crises.

In a speech to a traders' confederation in the capital, Ankara, Mr Erdogan said on Thursday that nobody should carry out business in foreign currency apart from exporters and importers.

Despite the comments, Erdogan added: "There has been no change in my sensitivities on the issue of interest rates".

The interest rate decision will be announced at 1100 GMT.

Turkey's central bank raised its benchmark rate by a hefty 625 basis points on Thursday, the biggest such increase in President Tayyip Erdogan's 15-year rule, boosting the lira and possibly easing investor concern over his influence on monetary policy.

Thursday's decree and Erdogan's remarks come after the lira's drastic fall in value against the USA dollar last month, during one of the worst diplomatic rows between North Atlantic Treaty Organisation allies Washington and Ankara.

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That decision sent the lira tumbling by a quarter and prompted Turkish authorities to impose a series of measures meant to support the currency.

That includes Argentina, which holds the distinction of having the world's highest interest rate.

The bank´s intervention was the latest aggressive rate hike to calm economic turbulence in an emerging market after the Argentinian central bank´s recent hike from 45 to 60 percent on August 30.

"The crucial thing is to restore the confidence of worldwide investors that their policies are on the right track", global economist Eswar Prasad said earlier this month.

"The Central Bank is independent, it takes its own decisions".

On Thursday, the Turkish Central Bank exercised that independence - and appeared to reassure investors in the process.

One of Erdogan's advisors mainly known for his outlandish statements, Yigit Bulut, was removed from the board, while new members included Rifat Hisarciklioglu, the president of the Union of Chambers and Commodity Exchanges of Turkey (TOBB).

It remains to be seen how the news will sit with Erdogan, however. The leader placed his son-in-law as head of the finance ministry and in a separate move has attempted to take control of the country's sovereign wealth fund.

The magnitude of the hike was all the more surprising given that just before the decision President Recep Tayyip Erdogan had slammed interest rates as a "tool of exploitation".

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