Turkish lira surges against United States dollar

Marco Green
September 14, 2018

The bank had not touched interest rates since early June with markets becoming increasingly concerned that the policy of the nominally independent bank is being dictated by Erdogan.

Turkish President Tayyip Erdogan on Friday said Turkey came under a "heinous economic attack" after statements from the United States.

"It nearly seems like it's a game of "good cop, bad cop" being played out between the Turkish authorities - with President Erdogan on the one hand still making statements regarding his dislike of interest rates and. a very sizeable reaction from the central bank in response to the recent inflationary and geopolitical developments", she said.

Before the move by policy makers in Ankara Thursday, the run on the currency forced the central bank to deliver some tightening where it could.

The central bank said there was still an upside risk to the inflation outlook from what it called a deterioration in pricing behaviour, despite weaker domestic demand conditions.

Must give a lesson to those who exploit with price hikes.

"We can not allow the use of the tool of exploitation that is interest rates", Erdogan told a meeting in Istanbul on Thursday. In one direction it could hear the siren call of investors craving higher interest rates to draw a line in the inflationary sand and stop the lira's collapse.

Before today's interest rate decision, Mr Erdogan announced he was banning the use of foreign currencies in property sales, rental contracts and leasing transactions and ruled all such transactions must now be made in lira.

The decision came despite Erdogan repeating his opposition to high interest rates earlier in the day, saying high inflation was a result of the central bank's wrong steps.

The bank is also fighting a losing battle against inflation with annual consumer price inflation hitting 17.9 percent last month, its highest level since late 2003. "If you say "inflation is the cause, the rate is the result", you do not know this business, friend", he added.

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

Relations with the USA deteriorated last month after Washington imposed sanctions on two Turkish ministers over the detention of an American pastor and President Donald Trump doubled steel and aluminium tariffs on Turkey.

TRT World journalist Mobin Nasir has the latest on the Turkish central bank's decision to increase interest rates to 24 percent.

Other reports by Click Lancashire

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