Monday, 10 December, 2018

Turkey's central bank raises interest rate to 24%

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Ginger Lawrence | 14 September, 2018, 14:44

Turkish President Recep Tayyip Erdogan has railed against interest rates as "the mother and father of all evil" and believes that high rates lead to high inflation.

"The central bank will continue to use all available instruments in pursuit of the price stability objective", the central bank's monetary policy committee said in a statement.

"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.

The lira firmed to 6.01 against the dollar following the decision, from more than 6.4176 beforehand.

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

"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 central bank and government have taken a series of measures to support the ailing currency, with Erdogan ruling early on Thursday that property sales and rental agreements must be made in lira, putting an end to such deals in foreign currency.

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A "tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement", it added.

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 global investors.

The Turkish lira began to recover shortly after the rate hike, strengthening by 3% to 6.16 against the dollar.

"Interest rates are the cause, inflation is the result". By way of comparison, the Federal Reserve's much-debated rate hikes earlier this year nudged the rate just fractions of a percentage point to around 2 percent in the U.S. "If you say "inflation is cause, the rate is the result", you do not know this business, friend", he added.

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.

TRT World journalist Mobin Nasir has the latest on the Turkish central bank's decision to increase interest rates to 24 percent.