Sunday 13, May 2018 by Jessica Combes

Turkey's Erdogan slams interest rates; lira slides

 

Turkish President Tayyip Erdogan called interest rates the “mother and father of all evil”, triggering a fresh slide in the lira.

The lira weakened as far as 4.3080 against the dollar after his comments as investors worried about the central bank’s ability to rein in high inflation.

“If my people say continue on this path in the elections, I say I will emerge with victory in the fight against this curse of interest rates, because my belief is: interest rates are the mother and father of all evil,” Erdogan said in a speech to business people in Ankara, referring to snap elections on 24 June, according to Reuters.

Last month inflation stood at 10.85 percent year-on-year, considerably higher than the bank’s target of five per cent.

According to Reuters, the lira rebounded slightly on Thursday following news that Erdogan held an unscheduled meeting of his economic team to address the sell-off in the currency, which has fallen more than 11 per cent against the US dollar this year. Attendees included Turkey’s central bank governor and the general managers of the largest state lenders, Ziraat Bankasi, Halkbank, and Vakifbank.

Investors appear to have been hoping for some additional tightening measures from the central bank, which added liquidity to shore up the lira this week. Its next policy-setting meeting is scheduled for 7 June.

Isik Okte, Strategist at Teb Yatirim/BNP Paribas said it is likely that the central bank will take action ahead of the monetary policy meeting to decrease its inflation outlook and the increasing volatility in the lira before the June 24 elections.

Cemil Ertem, one of Erdogan’s top economic advisers, said on Friday the central bank would continue to use all instruments to address exchange rate volatility, but that forex rates were not the only factor determining policy, Reuters reported.

 

  

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