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

Erdogan decree bans foreign currency property sales in Turkey

Erdogan decree bans foreign currency property sales in Turkey

Turkey's central bank raised its benchmark interest rate by the most since Recep Tayyip Erdogan came to power 15 years ago, countering the president's call for lower borrowing costs just two hours before the decision was announced.

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

He criticised the central bank, saying it had consistently miscalculated inflation targets and again portrayed the currency crisis as a foreign conspiracy.

The lira, which has lost more than 40% of its value this year, had firmed to as far as 6.08 against the United States dollar following the rate hike on Thursday, but later weakened slightly in early Friday trade.

The central bank's interest rate hike, which surprised investors with its magnitude, comes amid growing concerns that Erdoğan is pursuing policies that will eventually bankrupt the country.

The central bank said it was returning to funding via one-week repos from Friday, having funded the market at an overnight lending rate of 19.25 per cent for the last month.

"The central bank is independent and makes its own decisions", he said. In a bid to shore up the Turkish lira, Erdoğan's government issued a decree on Thursday banning the use of foreign currency in the sale and renting of property and the leasing of vehicles.

The Turkish lira gained ground against the USA dollar on September 12 ahead of the monetary policy committee meeting of the Turkish Central Bank.

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Turkish President Recep Tayyip Erdogan has accused the United States of launching what he called a "heinous economic attack" on Turkey after the national currency lira hit a record low following USA sanctions.

There had been indications from the bank that it would raise rates after inflation came in at almost 18 percent in August.

It vowed the tight stance in monetary policy would be "maintained decisively until inflation outlook displays a significant improvement".

Guillaume Tresca, senior emerging market strategist at Credit Agricole said the economy needed to slow down because it was overheating and that an interest rate rise was needed to cap lira depreciation.

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 bold decision (by Turkey's central bank) reduces the risk that a full-scale financial crisis may unfold", wrote analysts at Rabobank in a note to clients.

Relations with the USA deteriorated last month after Washington imposed sanctions on two Turkish ministers over the detention of an American pastor and President Donald Trump doubled steel and aluminium tariffs on Turkey.

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