Turkey’s President Recep Tayyip Erdoğan on Saturday renewed his call for lowering interest rates, a few days after the central bank decided to hold the rates steady despite the tumbling lira.
Erdoğan has long been pressuring the country’s central bank to lower rates. In an address to the Foreign Economic Relations Board (DEİK) general assembly today, Erdoğan said: “The gentlemen are disturbed because the president says it. Why are you disturbed? I’m concerned. There has to be investment in this country.” Although Erdoğan did not specify his target in today’s speech, he had previously blamed central bank policies and even said in September that the institution must be cleansed of Gülen movement sympathizers. Meanwhile, the pro-Erdoğan media often refers to an elusive “interest rate lobby” which aims to damage Turkey.
Erdoğan has long been championing low interest rates and thus cheaper credit, arguing that monetary policies supporting the opposite have caused the lira to weaken.
Yet, orthodox economists and market analysts state that the lira’s fall stems from a capital exodus from emerging markets to the US in light of Fed rate hikes and from Turkey’s own political turmoil.
Turkey’s central bank, in an unexpected move, held interest rates steady, defying the already historically low Turkish lira on Tuesday.
The main rates — overnight lending, overnight borrowing and the one-week benchmark repo rate — were kept at 8.5 percent, 7.25 percent and 8 percent, respectively.
The Turkish lira has depreciated by 17 percent against the dollar this year alone, which saw a military coup attempt in mid-July. Turkey’s anti-coup dragnet, or what many call a colossal purge of opponents, has resulted in the seizure of 700 companies that previously belonged to the government’s perceived enemies, and the followers of the Gülen movement in particular.
One of this year’s weakest performing emerging market currencies, the lira fell from 3.5095 to 3.5440 against the US dollar immediately after the decision to maintain the current rates and recovered some of its losses, to be traded at around 3.53 late in the day.
The decision came days after the national statistics agency reported a 1.8 percent contraction in Turkey’s GDP year-on-year in the third quarter, the first shrinkage in the past seven years.
The bank, which was under pressure from President Erdoğan for its monetary policies, raised rates last month for the first time in nearly three years to stem further losses in the value of the lira.