Turkish lira slides after Erdoğan calls for lower interest rates

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.