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

14 Septembre, 2018, 14:43 | Auteur: Auguste Feret
  • USDTRY May Hit Record High on Turkish Central Bank Inaction

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.

The lira is down 38% against the dollar this year despite Thursday's slim gain.

"We can not allow the use of the tool of exploitation that is interest rates", Erdogan told a meeting in Istanbul on Thursday.

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

In another bid to prop up the lira, Erdogan earlier on Thursday ordered by decree that property agreements in foreign currencies would not be allowed.

The monetary policy committee said deterioration in pricing behaviour continued to pose upside risks on the inflation outlook, despite weaker domestic demand conditions.

He has repeatedly blamed the central bank for high inflation, which hit nearly 18% last month, its highest level since 2003.

"Accordingly, the Committee has chose to implement a strong monetary tightening to support price stability", it added, explaining the hike.

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TRT World's Turkey analyst Yusuf Erim has more. "A rate hike would be an important step to restore market confidence in the lira".

"Turkey needs structural reforms to increase productivity, to decrease its dependence on short-term portfolio flows and to decrease the rigidness in the labour market".

Turkey's central bank raised its interest rate to a much higher than expected 24% on Thursday, triggering a surge in the country's flagging currency.

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.

The embattled currency has fallen by 40% this year amid a lack of interest rate hikes to control inflation. "If you say 'inflation is cause, the rate is the result, ' you do not know this business, friend".

Anthony Skinner, director of Middle East and North Africa at Verisk Maplecroft, told AFP he believed the hike had already been agreed.

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

But just hours before the CBRT decision, president Erdogan had dubbed interest rates as a "tool of exploitation", with the lira sliding further. They increased the cost of cash to commercial lenders by around 150 basis points last month by forcing them to use a borrowing tool costlier than the one-week repo rate.

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