Turkey bank vows ‘necessary steps’ after lira crashes to new lows
ISTANBUL: Turkey’s central bank yesterday vowed to take “necessary steps” to stabilise the embattled lira after it hit historic lows as investors took fright at comments by President Recep Tayyip Erdogan that he wanted a bigger say in monetary policy.
The lira has lost eight percent in value over the last month alone as Turkey heads to snap presidential and parliamentary elections on June 24 amid growing concerns over the health of the economy. In an interview with Bloomberg TV on Monday while on a visit to London, Erdogan signalled he wanted to take greater control over monetary and economic policy if he wins the elections.
“This may make some uncomfortable. But we have to do it,” he said. Investors have long been rattled by Erdogan’s sustained pressure on the central bank-which is nominally independent-to hike rates to boost growth.
‘Not what investors wanted’ “The comments from Erdogan were clearly not what investors wanted to hear,” said Jameel Ahmad, global head of currency strategy and market research at forex broker FXTM, saying they were seen “at the very least as a severe threat to central bank independence.” The lira earlier in the morning hit 4.5 lira to the dollar for the first time in history, a loss in value of over one percent on the day. However a statement by the central bank on the “unhealthy” fluctuations helped the lira to pare its losses in the afternoon to trade at 4.42, a gain in value of 0.4 percent on the day. “The Central Bank of the Republic of Turkey is closely monitoring the unhealthy price formations in the markets,” it said.
“Necessary steps will be taken, also considering the impact of these developments on the inflation outlook,” it added. It was not immediately clear if the central bank was considering an emergency meeting to raise interest rates help boost the lira. Its next scheduled monetary policy meeting is not until June 7. Meanwhile, the central bank’s chairman Murat Cetinkaya was at the headquarters of the ruling Justice Party (AKP) and could meet Erdogan, Turkish media said.
The currency had already been under severe pressure last week after Erdogan declared that interest rates were the “mother and father of all evil”. Erdogan’s statements fly in the face of economic orthodoxy where interest rates are used by central banks around the world as a tool to keep down inflation.