As lira tumbled,Turkey’s prime minister won Erdogan over for rate hike
ANKARA: It took days of preparation by Turkey’s top economic ministers and intervention by the prime minister to convince President Tayyip Erdogan of the need for a sharp increase in interest rates, three people familiar with the matter said.
As a selloff in the lira spiralled toward a full-blown crisis on Wednesday, the central bank announced an emergency increase of its top rate by a 3 percentage points, to 16.5 per cent, a move designed to put a floor under Turkey’s currency.
The decision was the outcome of rounds of talks that started in earnest three days earlier, when Deputy Prime Minister Mehmet Simsek and Finance Minister Naci Agbal convened an emergency meeting with Central Bank Governor Murat Cetinkaya to address the crisis, the sources said, declining to be identified because of the sensitivity of the information.
That the central bank was unable to move immediately, and that its move ultimately required the intervention of Prime Minister Binali Yildirim two days later, points to tension over monetary policy at the top of Turkey’s government.
A self-described ‘enemy of interest rates’ Erdogan has, with elections just a month away, repeatedly called for lower borrowing costs to fuel credit growth and spending.
International investors want to see higher rates to rein in doubledigit inflation and have dumped the lira on concerns about Er- dogan’s influence over monetary policy.
“Was it a late decision? Yes. The currency would not have to trade at these levels if this hike was carried out earlier,” said one senior official from Erdogan’s ruling AK Party.
The ministers believed that it was not just the currency at stake – even though the lira had fallen by about a fifth this year – but the need to prevent ‘permanent damage’ to the economy, one of the sources said.
They agreed on the need for rate increase to calm the lira, and then conveyed that message to Yildirim, at a separate meeting later on Monday, the sources said.
Representatives for Agbal and Simsek could not immediately be reached for comment. No one was immediately available to comment at the central bank, the prime minister’s office or the presidency.
More talks followed on Tuesday, where additional potential steps to arrest the lira decline was discussed.
Yildirim ultimately broached the topic of a rate hike with Erdogan on Wednesday at their weekly meeting – a full two days after hearing from the ministers about the need for the increase.
By then the lira was falling fast, tumbling more than 5 per cent at one point. — Reuters