Lira plum­mets un­abated as Er­do­gan slams rate hikes

The Globe and Mail (Ottawa/Quebec Edition) - - REPORT ON BUSINESS - HUMEYRA PA­MUK IS­TAN­BUL

Pres­i­dent dis­misses cur­rency’s weak­ness as an in­di­ca­tor of broader economic cri­sis

Turk­ish Pres­i­dent Re­cep Tayyip Er­do­gan stood by his op­po­si­tion to high in­ter­est rates on Sun­day de­spite sharp falls in the coun­try’ s cur­rency, say­ing the lira’s weak­ness did not re­flect Turkey’s economic re­al­i­ties.

Speak­ing to sup­port­ers in Trab­zon on the Black Sea coast, Mr. Er­do­gan dis­missed sug­ges­tions that Turkey was in a fi­nan­cial cri­sis such as those seen in Asia two decades ago, damp­en­ing ex­pec­ta­tions of a rate in­crease to sup­port the cur­rency.

The Turk­ish lira has lost about 40 per cent of its value this year, largely over wor­ries about Mr. Er­do­gan’s in­flu­ence over the econ­omy, his re­peated calls for lower in­ter­est rates in the face of high in­fla­tion and wors­en­ing ties with the United States.

“In­ter­est rates are an ex­ploita­tion tool that makes the rich richer and the poor poorer,” Mr. Er­do­gan said. “No­body should try to make us fall into this trap, we won’t be fooled by this plot, no­body should get ex­cited.”

Mr. Er­do­gan, who has called him­self the “en­emy of in­ter­est rates,” wants cheap credit from banks to fuel growth, but in­vestors fear the econ­omy is over­heat­ing and could be set for a hard landing.

His com­ments on in­ter­est rates – and his re­cent ap­point­ment of his son-in-law as Fi­nance Min­is­ter – have height­ened per­cep­tions that the cen­tral bank is not in­de­pen­dent.

On Sun­day, he said the lira’s free-fall was the re­sult of a plot and did not re­flect Turkey’s economic fun­da­men­tals. “What is the rea­son for all this storm in a tea cup? There is no economic rea­son for this. … This is called car­ry­ing out an op­er­a­tion against Turkey,” he said.

Mr. Er­do­gan’s re­marks also knocked back in­vestors’ ex­pec­ta­tions of a rate hike from the cen­tral bank.

The cen­tral bank raised in­ter­est rates to sup­port the lira in an emer­gency move in May, but it did not tighten mon­e­tary pol­icy at its most re­cent meet­ing.

On Fri­day, the lira sank to a fresh record low, fall­ing as much as 17 per cent at one point, prompt­ing calls from in­vestors for cen­tral bank ac­tion to shore up the lira.

Mr. Er­do­gan re­peated his call for Turks to sell dollars and buy lira to shore up the cur­rency, while telling busi­ness own­ers not to stock up on dollars.

“I am specif­i­cally ad­dress­ing our man­u­fac­tur­ers: Do not rush to the banks to buy dollars. Do not take a stance say­ing ,‘ We are bank­rupt, we are done, we should guar­an­tee our­selves .’ If you do that, that would be wrong. You should know that to keep this na­tion stand­ing is … also the man­u­fac­tur­ers’ duty.”

Turkey’s spat with the United States has fur­ther weighed on the lira.

The two North At­lantic Treaty Or­ga­ni­za­tion (NATO) al­lies have been at odds over a wide range of is­sues: di­verg­ing in­ter­ests in Syria, Ankara’s am­bi­tion to buy Rus­sian de­fence sys­tems and more re­cently the case of Andrew Brun­son, an evan­gel­i­cal pas­tor on trial in Turkey.

Af­ter Mr. Brun­son had been in jail for al­most 20 months, a court in July or­dered him to be moved to house ar­rest. Since then, U.S. Pres­i­dent Don­ald Trump and Vice-Pres­i­dent Mike Pence have called for his re­lease, while Ankara says the de­ci­sion is up to the courts.

Wash­ing­ton in re­sponse sanc­tioned two Turk­ish min­is­ters, and Mr. Trump on Fri­day an­nounced the United States was dou­bling tar­iffs on steel and alu­minum im­ports from Turkey, say­ing re­la­tions with Ankara were “not good at this time.”

“Our re­sponse to those who wage a trade war against the whole world and in­clude our coun­try in that would be head­ing to­wards new mar­kets and new al­liances,” Mr. Er­do­gan said.

Last week, a Turk­ish del­e­ga­tion went to Wash­ing­ton and met with U.S. coun­ter­parts, but there was no break­through.

On Sun­day, Mr. Er­do­gan re­vealed de­tails of talks be­tween the two coun­tries over the pas­tor, say­ing the United States had given Turkey un­til last Wed­nes­day it to hand over the pas­tor.

“If we did not re­lease him, they said they would sanc­tion us. … What hap­pened? Im­me­di­ately, we have im­posed the same sanc­tions on their min­is­ters,” Mr. Er­do­gan said.


In Is­tan­bul, a man counts lira bills at a cur­rency ex­change on Fri­day. Pres­i­dent Re­cep Tayyip Er­do­gan’s staunch op­po­si­tion to in­creas­ing in­ter­est rates to alle­vi­ate ris­ing in­fla­tion­ary pres­sures, as well as strained ties with the United States, have con­trib­uted to the cur­rency’s de­cline.

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