Turkish central bank raises rates sharply, boosts lira

14 September, 2018, 00:02 | Author: Brooke Harris
  • Soc Gen exchange rate forecast for EURUSD

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. "If you say "inflation is the cause, the rate is the result", you do not know this business, friend", he added.

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

Erdoğan has always been pressuring the bank to keep interest rates low to encourage economic growth.

"They act according to the Central Bank's decisions and there are now rates as high as 50 percent in practice", Erdoğan said, underlining that such sharp profits could only be gained through narcotics.

Erdogan again described interest rates as a "tool of exploitation" but vowed that "we can not be taken advantage of".

It was not immediately clear if Erdogan had been aware of the central bank's decision when he made his comments.

The US earlier hit Turkey with tariffs on items such as steel and aluminium in an effort to increase pressure on the country to free the detained American pastor Andrew Brunson.

The currency has plunged in recent months and even after Thursday's rise was down nearly 39% against the dollar this year.

"Hemati told the media a meeting with the administrators of the Turkish and Russian Central Banks is expected in the near future and he hopes the agreed topics would rapidly come into effect", the Turkish agency said. Subsequently, the lira lost about 25 per cent of its value while authorities have taken a series of steps to support it, with the bank taking liquidity measures and the banking watchdog limiting derivative transactions.

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Who is responsible for Turkey's lira crisis?

Economists have warned of a possible recession in Turkey after a slowdown in the second financial quarter of 0.9 percent, compared to 1.5 percent in the first quarter of this year.

However, speaking to Middle East Eye, Julian Walker, a director at Spot Blue, a UK-based company that specialises in property in Turkey, said: "I don't think this move will be awful for business".

"Ultimately, I think if you're buying long-term in Turkey, it shouldn't really be an issue".

It remains to be seen how the news will sit with Erdogan, however.

With the lofty motto of "for a stronger Turkey", the fund describes its mission as developing and increasing the value of Turkey's strategic assets by "transparency-oriented corporate governance".

Last September, Erdogan said the fund had failed to realize a "targeted and desired" outcome.

Zafer Sonmez, head of the Turkey regional office of the Malaysian sovereign wealth fund Khazanah Nasional, was named as general manager. Its portfolio includes 100% ownership of Turkish Petroleum, Borsa Istanbul and Ziraat Bank, as well as shares in national carrier Turkish Airlines (49.12%) and Halk Bank (51.11%).

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