COERCE

ERDOGAN LASHES OUT AT INVESTORS OVER TUMBLING LIRA

Turkish President Tayyip Erdogan lashed out at international investors on April 12, saying that no one could use exchange rates to bring the country to heel, casting a slide in the value the lira as a foreign conspiracy. His comments came after the lira plumbed record lows for five straight trading days, a sell-off that Erdogan and his ministers called an economic attack by outside forces.

The lira’s slide, one of the worst performances among emerging markets, reflects the gulf between Erdogan and international investors over monetary policy. Erdogan, an economic populist and a self-described “enemy of interest rates” wants to see lower borrowing costs despite doubledigit inflation. “Do not worry, Turkey continues on its path with determined steps, nobody can discipline us based on exchange rates,” he said in a speech in Ankara. “The rise in exchange rates has no reasonable, logical or by-the-book explanation.”

Economists say the lira’s slide is a reflection of entrenched inflation and wage growth and that interest rates needs to be raised to arrest its fall. The lira has faced some pressure from growing tension between the United States and neighbouring Syria and from a sell-off in the Russian rouble, the currency of a major trading partner and a fellow emerging-market heavyweight. But investors say most of Turkey’s problems are home grown.

Markets are looking ahead to the central bank’s next policy-setting meeting on April 25. The bank’s reluctance to raise rates at its last two meetings has heightened the perception that it is less than independent. The central bank is following developments in inflation and will tighten monetary policy further if that is deemed necessary, its governor, Murat Cetinkaya, said on the same day as Erdogan's comments, appearing to give the currency some relief.

Data released on April 11 showed the current account - a broadly defined measure of trade that includes services and investment income recorded a deficit of over $4.15 billion in February. That was less than the $4.2 billion forecast in a Reuters poll but an increase of more than 60 percent from the same period a year earlier. Analysts said it affirmed Turkey’s vulnerabilities on the balance of payments front.