Published: Fri, September 14, 2018
Finance | By Loren Pratt

Turkey raises interest rates to 24% in new bid to boost lira

Turkey raises interest rates to 24% in new bid to boost lira

President Recep Tayyip Erdogan has appointed himself chairman of Turkey's multi-billion-dollar sovereign wealth fund, according to a decision published Wednesday in the Official Gazette.

"However, one swallow doesn't make a summer", she warned.

In 15 years inflation was never in line with central bank targets.

In a statement, the bank's Monetary Policy Committee said the policy rate was increased to 24 percent, up from 17.75 percent.

The central bank and government have taken a series of measures to support the ailing currency, with Erdogan ruling early on Thursday that property sales and rental agreements must be made in lira, putting an end to such deals in foreign currency.

Its monetary committee chose to "implement strong monetary tightening to support price stability", it said on Thursday, as it raised interest rates by 625 basis points in the face of a spike in inflation and a slump in the lira.

TRT World's Turkey analyst Yusuf Erim has more.

A "tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement", it added. "A rate hike would be an important step to restore market confidence in the lira".

But Neuteboom of ABN Amro said much more was needed for Turkey to turn around "the negative spiral" the economy is in.

The bank's decision was announced hours after Erdogan triggered tumult by repeating his hostility to higher borrowing costs and issuing an order that limited the use of foreign currency in domestic transactions.

He earlier charged the bank with failing to control inflation and again aired his unorthodox view that low rates bring inflation down.

Currently, the interest rates are below the annual inflation level in Turkey.

Anthony Skinner, director of Middle East and North Africa at Verisk Maplecroft, told AFP he believed the hike had already been agreed. Erdoğan has always been pressuring the bank to keep interest rates low to encourage economic growth. And on the morning of the rate hike decision, Erdogan was busy.

The bank later said on Twitter that funding would be provided via the policy rate, the one week repo auction rate, instead of through overnight lending from September 14.

Turkey's currency and inflationary troubles are also compounded by the threat of steel and aluminium tariffs from the U.S. as well as sanctions over the detention of an American evangelical pastor.

"Great decision - made all the more hard by the huge pressure on the central bank from Erdogan", said Bluebay Asset Management LLC strategist Tim Ash.

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