Erdogan blasts 'heinous economic attack' by US

Ivan Schwartz
September 16, 2018

The Central Bank of the Republic of Turkey (TCMB) under Governor Murat Çetinkaya yesterday increased interest rates to an astounding 24% in a frantic bid to rein-in surging inflation and prevent a crippling currency crisis from spreading out of control.

"If wished, extra monetary tightening will be delivered", the bank stated in an announcement.

Turkey's annual inflation has jumped to almost 18 percent while economic growth has slowed to an annual rate of 5.2 percent in the second quarter, from the first quarter's 7.4 percent.

"This was 300 basis points more than expected so we are very surprised", Win Thin, Global Head of Emerging Markets at Brown Brothers Harriman, told DW.

The bank had faced a dilemma, and still does. In May this year, the Turkish leader prompted one of the biggest ever losses to the lira when he declared to investors in London that he believed higher interest rates are the reason for high inflation. In the other direction, with the economy heading into recession, lower rates would help inject growth stimuli. Economic orthodoxy suggests the opposite. He was speaking in a televised address after the decree on contracts was published and before the rate decision was announced.

The fund was established in August 2016 and tens of billions of dollars worth of state assets including - wholly state-owned - Ziraat Bank were transferred to it in 2017. "If you think inflation is the cause and interest rates are the result, it means you don't know about this matter, my friend".

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".

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-China trade stand-off and ahead of major central bank meetings on Thursday, including emerging market trouble spot Turkey. "My sensitivity to interest rates is the same, and that's not a crisis, it's a manipulation, do not be mistaken, that's going to be overcome", added the Turkish President.

"My sensitivities concerning interest rates are the same, nothing has changed", Erdogan said.

The lira reacted strongly to the decision, rising by five percent in value to 6.0 lira to the United States dollar.

Key rates are now at their highest level since 2004, around a year after Erdogan first came to power.

Late on Thursday, Finance Minister Berat Albayrak told pro-government newspaper Sabah that the central bank's move had put an end to any discussions about the bank's independence, and said Turkey would unveil its medium-term economic program on September 20.

Erdogan has linked the slide in the lira's value to the economic attack launched by the Trump administration under a pretext of an ongoing legal case involving an American pastor who is under house arrest in Turkey and facing terrorism charges.

Other reports by GizPress

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