Erdogan warns over dangers of higher interest rates

Turkey's Already Struggling Economy Faces More Headwind due to COVID-19

The Turkish currency, which had lost almost a third of its value against the USA dollar this year, has risen about 12% since the economic leadership reshuffle.

Erdogan's comments saw the lira immediately lose 0.7% against the dollar.

The lira suffered record lows for months before President Recep Tayyip Erdogan's son-in-law Berat Albayrak resigned as finance minister 10 days ago.

Investors, many of whom are desperate for returns, at a time when the global pile of negative-interest debt is at a record high, have welcomed the decision to appoint Lutfi Elvan, a market-friendly ex-bureaucrat, as the new Treasury Secretary and a commitment from Mr. Erdogan last week that Turkey would "swallow a bitter pill" if necessary to get the economy back on track.

The sudden shakeup sparked a market rally and turned Thursday's rate decision into a test of how reform-minded and independent the new team will be.

Turkey's central bank sharply raised its benchmark interest rate, pledging to combat inflation less than two weeks after President Recep Tayyip Erdogan reshuffled his economic team and backed a shift in approach to fix an economy beset by a dwindling currency.

Erdogan told an economic meeting in the capital Ankara yesterday that he still opposed 'high interest rates.

There is scepticism over how long the nominally independent bank will be free to act since Erdogan believes high interest rates cause high inflation. "We will see that our country stands out positively in production, employment, exports, and growth". It's not possible, he said.

The lira regained its losses when the president who investors say plays a big role in monetary policy decisions said in the same speech that Turkey's main priority is the fight against inflation, which has been stuck near 12% all year.

The hike was in line with market expectations but the shift to a single funding mechanism - thus eliminating the much-criticised practice of raising the main rate through stealth and unpredictable means - pleasantly surprised some economists.

A hike in the central bank's key rate, now at 10.25%, could stall the economy's rebound from coronavirus fallout but could also help avert a broader balance of payments problems by boosting the lira. We do not accept any responsibility or liability for the accuracy, content, images, videos, licenses, completeness, legality, or reliability of the information contained in this article.

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