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19th of October 2018

Economy



Turkey lira plunges as Erdogan slams central bank

Turkish President Recep Tayyip Erdogan on Thursday launched a blistering attack on Turkey's central bank, causing a sharp fall in the value of the lira just ahead of a crucial rate decision.

The bank is widely expected to raise rates this afternoon to calm economic turbulence after the lira nosedived in the last weeks and inflation soared to almost 15 percent.

But Erdogan -- who has been accused by critics of pressuring the nominally independent central bank -- charged it with failing to control inflation and again aired his unorthodox view that low rates bring inflation down. "As of today I have not seen the central bank fix inflation rates as they promised," Erdogan told a conference in Ankara.

"Interest rates are the cause, inflation is the result. If you say 'inflation is cause, the rate is the result', you do not know this business, friend," he added.

Erdogan again described interest rates as a "tool of exploitation" but vowed that "we cannot be taken advantage of".

Markets reacted badly to Erdogan's comments, with the lira losing 3.5 percent in value against the dollar at one point. It later rallied slightly to trade at 6.45 lira, a loss of 1.6 percent on the day as traders awaited the decision.

It was not immediately clear if Erdogan's comments signalled that the central bank would not lift rates when the decision is announced at 1100 GMT or if he was angry at the prospect of a likely hike.

“There has been no change in my sensitivities on the issue of interest rates," Erdogan said.

“The central bank is independent and makes its own decisions," he added.

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