Trade hopes and Turkey rate hike feed the bulls

  • Trade hopes and Turkey rate hike feed the bulls

Trade hopes and Turkey rate hike feed the bulls

President Recep Tayyip Erdogan had preceded the lender's announcement with a speech that slammed interest rates - a frequent bugbear of his - briefly spurring speculation that the bank would not move to arrest the slide of the currency and prevent the potential spread of Turkey's currency woes to other emerging economies.

The currency was up 0.6% to 6.0455 per dollar by 10:40 am in Istanbul, after rising 4.3% the previous day.

But Erdogan - who has been accused by critics of pressuring the nominally independent central bank - had earlier charged the bank with failing to control inflation and again aired his unorthodox view that low rates bring inflation down.

"We have faced a heinous attack targeting the Turkish economy after a series of negative statements from the United States about our country were used as an excuse", said Erdogan, calling the collapse of the national currency against the dollar "an economic assassination attempt".

Inflation ran at 17.9 percent in August, but the latest rate hike - while substantial for Turkey, especially under Erdogan - is too limited to counter such a figure. 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 surprise move buoyed markets that had been mired in a slump for months, triggered by a diplomatic row with the USA and then amplified by central bank inaction.

The lira firmed to 6.01 against the dollar following the decision, from more than 6.4176 beforehand.

Against expectations, the central bank did not raise rates at its last meeting in July.

It said the policy would be "maintained decisively until inflation outlook displays a significant improvement".

Erdogan called on Turkey's exporters to take advantage of the current levels in foreign exchange rates to increase the volume of exports, and production and employment as well.

"Erdogan's comments clearly show that he does not support this and it becomes much more hard, if not impossible, for the Turkish central bank to tighten enough to stabilize the lira and get inflation under control", Esther Reichelt, a forex strategist at Commerzbank in Frankfurt, told DW.

Inflation in Turkey is now nearly 20 percent and the crisis there has spread to some other emerging market countries with sizable current account deficits. "If you say "inflation is the cause, the rate is the result", you do not know this business, friend", he added.

The lira had weakened earlier on Thursday before the central bank decision as Erdogan's fierce criticism of the central bank and high interest raised doubts in investors' minds about how much the bank might tighten policy.

Washington has imposed sanctions on two Turkish ministers and doubled tariffs on steel and aluminum imported from the country.