Published: Fri, September 14, 2018
Money | By Ralph Mccoy

Turkey raises interest rates to 24% in startling bid to curb inflation

Turkey raises interest rates to 24% in startling bid to curb inflation

"The Central Bank is independent, it takes its own decisions". The depreciation has fueled higher import costs, contributing to an inflation rate that is more than three times the central bank's target, and many investors are calling for a large increase in borrowing costs to put an end to the rout.

It has now increased interest rates by 11.25 percentage points since late April as it struggles to bring the lira out of freefall.

The magnitude of the hike was all the more surprising given that just before the decision Erdogan had slammed interest rates as a "tool of exploitation".

"It nearly seems like it's a game of "good cop, bad cop" being played out between the Turkish authorities - with President Erdogan on the one hand still making statements regarding his dislike of interest rates and. a very sizeable reaction from the central bank in response to the recent inflationary and geopolitical developments".

Its decision came despite Erdogan repeating his opposition to high interest rates earlier in the day, saying high inflation was a result of the central bank's wrong steps. Later the currency rate stabilized around 6.20 with lira's gains at some 2.2 percent.

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The lira rallied 3 per cent to 6.18 against the dollar, having traded at 6.4176 beforehand.

Turkey's currency and inflationary troubles are also compounded by the threat of steel and aluminium tariffs from the United States as well as sanctions over the detention of an American evangelical pastor.

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Economists have warned of a possible recession in Turkey after a slowdown in the second financial quarter of 0.9 percent, compared to 1.5 percent in the first quarter of this year.

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

However, speaking to Middle East Eye, Julian Walker, a director at Spot Blue, a UK-based company that specialises in property in Turkey, said: "I don't think this move will be bad for business".

"With the current volatility, you have some settlement concerns, the days between when the deal was agreed and the final few days for it to go through. It's only really going to be a bit problematic if you're repatriating to the country you came from".

With the lofty motto of "for a stronger Turkey", the fund describes its mission as developing and increasing the value of Turkey's strategic assets by "transparency-oriented corporate governance".

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

Albayrak and Sonmez were among the seven members in the Turkish fund's new board, the Reuters news agency reported. Its portfolio includes 100% ownership of Turkish Petroleum, Borsa Istanbul and Ziraat Bank, as well as shares in national carrier Turkish Airlines (49.12%) and Halk Bank (51.11%).

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