Turkish lira hits record low after Erdogan interest rate comments

ISTANBUL: Turkey’s lira weakened to a record low of 4.9767 against the dollar in overnight Asian trade before trimming losses on Thursday, hit by worries about economic management and monetary policy under Tayyip Erdogan’s stronger executive presidency.
The lira has shed about 22 per cent of its value against the US currency so far this year as investors fret over Erdogan’s influence on monetary policy and his repeated calls for lower interest rates.
Hours after being sworn in with new powers as executive president on Monday, he appointed his son-in-law Berat Albayrak to the post of treasury and finance minister. This exacerbated concerns that Erdogan will look to exercise greater influence over monetary policy.
On Wednesday, local media quoted Erdogan as saying he believed interest rates would fall and that Albayrak will do what is necessary.
“We have many instruments. I believe we will see interest rates fall in the period ahead,” the Hurriyet newspaper cited the president as telling reporters after his first foreign trip following the inauguration.
“I am sure not just our state banks but our private banks will shoulder responsibility if necessary.”
The lira weakened as far as 4.9767 in Asian trade before rebounding to 4.8320 at 07:44 GMT on Thursday.
“Erdogan said yesterday interest rates must fall,” said a treasury desk trader at one bank. “This has been interpreted as a desire for a Turkish central bank rate cut at a time when additional tightening is expected and inflation has exceeded 15 per cent.”
The central bank’s monetary policy committee, which has raised rates by 500 basis points since April in an effort to put a floor under the currency, will next meet on July 24.
Erdogan has described high interest rates as “the mother and father of all evil” and has repeatedly expressed a desire for lower borrowing costs to spur economic growth.
Investors believe the credit-fuelled economy is overheating and want decisive interest rate hikes to tame double-digit inflation. Ratings agency Moody’s on Thursday sounded concern about the outlook for the independence of the central bank, given changes this week that make the president solely responsible for appointing members of the bank’s monetary policy committee, and shortened the length of the central bank governor’s term.
Challenges to the effectiveness of the central bank are “most clearly credit negative at this point” Moody’s said in a note. — Reuters