Published: Thu, September 13, 2018
Business | By Tara Barton

Turkish lira hits new high amid rate hike talk

Turkish lira hits new high amid rate hike talk

Erdogan's son-in-law Berat Albayrak, who already serves as treasury and finance minister, will become the acting chairman of the fund.

"Hiking today does get Turkey on the slow road to recovering some monetary policy credibility, and that is critical".

"Accordingly, the Committee has chose to implement a strong monetary tightening to support price stability", it said.

"Deterioration in the pricing behaviour continues to pose upside risks on the inflation outlook, despite weaker domestic demand conditions", the bank added.

Erdogan took over as Turkey's first executive president in July with sweeping new powers, including oversight over economic policy and the ability to appoint the central bank governor. It has still lost 38 percent of its value against the USA currency this year.

"Great decision - made all the more hard by the huge pressure on the central bank from Erdogan", said Bluebay Asset Management LLC strategist Tim Ash. Dollar-denominated bonds issued by the Turkish government rose across the curve.

The bank implemented what economists described as a hidden interest rate hike in mid-August, forcing banks to borrow at the higher 19.25 per cent through the overnight lending facility.

Erdogan a year ago said the fund needed a "reorganisation" after the first chairman Mehmet Bostan was removed from his post in September 2017.

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The bank had not touched interest rates since early June with markets concerned that the policy of the nominally independent bank is being dictated by Erdogan.

The embattled currency has fallen by 40% this year amid a lack of interest rate hikes to control inflation. "If you say "inflation is the cause, the rate is the result", you do not know this business, friend", he added.

The bank said on Thursday that inflation developments pointed "to significant risks to price stability" due to the recent fall in the value of the lira.

"Hemati told the media a meeting with the administrators of the Turkish and Russian Central Banks is expected in the near future and he hopes the agreed topics would rapidly come into effect", the Turkish agency said.

Phoenix Kalen at Societe Generale said the market was both pleased and confused by the bank's move.

Piotr Matys at Rabobank said Turkey also needed to resolve its trade dispute with the USA and rebalance the economy away from big infrastructure projects and consumer spending. Subsequently, the lira lost some 25 percent of its value while Turkish authorities have taken a series of steps created to support the currency, with the central bank taking liquidity measures and the banking watchdog limiting derivative transactions.

On Thursday he ruled that property sales and rental agreements must be made in lira, putting an end to such deals in foreign currencies.

Mr Erdogan has previously urged Turks to sell their dollars and euros.

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