Issued by CEMO Center - Paris
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Turkish lira slides after Erdoğan calls for lower interest rates

Friday 15/January/2021 - 05:29 PM
The Reference
طباعة

Turkey’s lira fell on Friday after President Recep Tayyip Erdoğan said interest rates should be cut to slow inflation.

Erdoğan said he was against high interest rates “whether they listen or not”.

The lira traded down 1.4 percent at 7.47 per dollar after dropping to as low as 7.51. It had traded little changed before Erdoğan spoke to a business group in Istanbul.

Interest rates are directly correlated with inflation and it is important to cut them to reduce inflation, he said.

Turkey’s Islamist president is a vocal opponent of higher interest rates. The country’s central bank kept borrowing costs below inflation to help his government engineer a borrowing boom last year. But the policy backfired, causing the lira to hit successive record lows against the dollar. Those losses prompted Erdoğan to sack and replace the central bank’s governor in early November, who has since hiked rates sharply.

“I need investment, I need employment, I need production, I need exports,” Erdogan said. “If I don’t have these four things, then there is nothing.”

Foreign investors in Turkey have been buying liras after new central bank governor Naci Ağbal raised interest rates to 17 percent from 10.25 percent since his appointment. But inflation in the country has continued to accelerate, reaching 14.6 percent last month.

On Thursday, Turkey’s biggest business group censured the country’s banks for charging excessively high interest rates on loans.

Banks in Turkey are increasing borrowing costs for businesses and consumers to reflect their own higher funding costs from the central bank.

The interest rates banks are charging are “one of the greatest obstacles to production and investment,” said Rifat Hisarcıklıoğlu, the head of the Union of Chambers and Commodity Exchanges of Turkey (TOBB).

The rising cost of food and the plummeting lira have been eating into Erdoğan’s popularity among the electorate, recent opinion polls showed.

Some Turks are now stockpiling basic food stuffs, including baby biscuits, rice and pasta, after inflation accelerated, Reuters reported earlier on Friday.

Erdoğan said the focus of economic policy this year would be price stability. He also said the lira had gained against the dollar and euro, and that $15 billion of foreign capital had entered Turkish markets in the past few months.

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