Erdogan appoints himself head of Turkey's wealth fund

Lloyd Doyle
September 14, 2018

But Erdogan - who has been accused by critics of pressuring the nominally independent central bank - had earlier charged the bank with failing to control inflation and again aired his unorthodox view that low rates bring inflation down. Erdoğan has always been pressuring the bank to keep interest rates low to encourage economic growth.

The increase, which was higher than expected, boosted the lira by five percent against the dollar and may ease investor concern about Erdogan's influence on monetary policy.

The bank raised the one-week repo rate to 24 percent, meaning it has now increased interest rates by 11.25 percentage points since late April, in an attempt to put a floor under the tumbling lira.

The lira has fallen more than 40 percent against the dollar this year, driving up the cost of food and fuel and sending inflation soaring to 18 percent, its highest in a decade and a half.

Thursday's decree and Erdogan's remarks come after the lira's drastic fall in value against the U.S. dollar last month, during one of the worst diplomatic rows between North Atlantic Treaty Organisation allies Washington and Ankara.

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

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".


"It was a big surprise to us, but probably to every Turkey-watcher", said Nora Neuteboom, an economist at ABN Amro, saying the move was a "positive signal" with the bank wanting to show its independence and commitment to fight inflation.

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.

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

Before today's interest rate decision, Mr Erdogan announced he was banning the use of foreign currencies in property sales, rental contracts and leasing transactions and ruled all such transactions must now be made in lira.

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

Despite the comments, Erdogan added: "There has been no change in my sensitivities on the issue of interest rates". "If you say "inflation is cause, the rate is the result", you do not know this business, friend", he added.

Turkey's currency and inflationary troubles are also compounded by the threat of steel and aluminium tariffs from the United States as well as sanctions over the detention of an American evangelical pastor.

Other reports by Iphone Fresh

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