Erdogan decree bans foreign currency property sales in Turkey

Lloyd Doyle
September 13, 2018

The independence of monetary policy has been in doubt since Erdogan pledged in his election campaign this year to take on a greater role to bring interest rates lower.

Turkish President Tayyip Erdogan makes a speech during a meeting in Ankara, Turkey September 13, 2018.

The fall in the value of the lira in recent months has pushed up the price of everyday items in Turkey and raised fears the country is sliding into an economic crisis.

Right before the bank acted, Erdogan decried high interest rates as a "tool of exploitation".

In a bid to shore up the Turkish lira, Erdoğan's government issued a decree on Thursday banning the use of foreign currency in the sale and renting of property and the leasing of vehicles.

Turkey's central bank, which described the hike as a "strong monetary tightening to support price stability", had left interest rates untouched since early June, causing markets to question just how independent bank policy was from the country's president.

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

The lira has lost more than 40 per cent of its value this year amid a diplomatic spat with the U.S. and signs of an overheating economy.

It vowed the tight stance in monetary policy would be "maintained decisively until inflation outlook displays a significant improvement".


The central bank surprised investors by not raising rates when it last met in July.

But Neuteboom of ABN Amro said much more was needed for Turkey to turn around "the negative spiral" the economy is in.

"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.

"Interest rates are the cause, inflation is the result".

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

All 11 economists in a Reuters poll forecast the bank would tighten, but with the rate hike predictions ranging between 225-725 basis points as the bank balances concerns over lira weakness with worries about an economic slowdown. "Erdogan´s speech. was meant to put distance between himself and the (bank´s) decision".

Turkey's currency crisis has been driven by concerns about Erdogan's influence on monetary policy, but also more recently by the country's diplomatic row with the United States.

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

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.

Other reports by Iphone Fresh

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