Thursday, 15 November, 2018

Erdogan takes wheel of Turkish wealth fund

DXY Index Sideways Grind Continues ahead of BOE ECB Tomorrow Erdogan appoints himself chairman of Turkey's sovereign wealth fund
Laurie Berry | 14 September, 2018, 00:01

Brett Diment at Aberdeen Standard Investments said raising rates would put "Turkey on the slow road to recovering some monetary policy credibility, and that is critical".

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.

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

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

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.

"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.

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

It said: "Accordingly, the committee has made a decision to implement a strong monetary tightening to support price stability".

Following the news, the Turkish lira rose 5 percent in value against the United States dollar, reversing its 42-percent fall this year against the American currency.

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It said the policy would be "maintained decisively until inflation outlook displays a significant improvement".

The central bank's move makes Turkey's interest rate one of the highest in the world.

TRT World's Turkey analyst Yusuf Erim has more.

Ignoring calls for restraint from President Recep Tayyip Erdoğan, the bank raised its main short-term rate from 17.5% following weeks of pressure from worldwide investors.

"Erdogan's comments clearly show that he does not support this and it becomes much more hard, if not impossible, for the Turkish central bank to tighten enough to stabilize the lira and get inflation under control", Esther Reichelt, a forex strategist at Commerzbank in Frankfurt, told DW.

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. And on the morning of the rate hike decision, Erdogan was busy.

"Obviously, it will have negative consequences on the economy but, I would say, it is less important if you have a hard landing than big corporate defaults due to a vicious cycle between (lira) depreciation and inflation", he said.

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.

The US hit two Turkish ministers with sanctions over the detention of US pastor Andrew Brunson and President Donald Trump doubled steel and aluminium tariffs on Turkey.

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