Turkish lira hits new low after president’s comments on rates

ISTANBUL: Turkey’s lira touched a record low overnight, reflecting deepening investor concern about monetary policy and economic management after President Tayyip Erdogan appointed his son-in-law as finance minister this week.

The currency has lost more than a fifth of its value against the US dollar this year, pushing inflation to its highest in 14 years and squeezing dollar-indebted companies across the economy.

Hours after being sworn in with new powers as executive president on Monday, Erdogan appointed his son-in-law Berat Albayrak to the post of treasury and finance minister, exacerbating concerns the president will look to exercise greater influence over monetary policy.

Erdogan has described high interest rates as “the mother and father of all evil” and wants lower borrowing costs to keep cheap credit flowing to the construction sector and spur economic growth. Investors want to see decisive rate increases to rein in inflation that hit more than 15% last month.

“I believe we will see interest rates fall in the period ahead,” the Hurriyet newspaper cited him 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 overnight, its weakest on record, before recovering. It was at 4.8145 at 1028 GMT yesterday.

“Erdogan said yesterday (Wednesday) 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%.”

The central bank’s monetary policy committee next meets on July 24.

Albayrak’s appointment has left the Cabinet without any obvious investor-friendly ministers.

Markets have also been unnerved by presidential decrees this week that reduced term limits for central bank governors and deputy governors and made the president solely responsible for appointing members of the bank’s monetary policy committee. – Reuters