Turkey’s central bank hikes rates sharply, boosts lira

Erdogan appoints himself chairman of Turkey's sovereign wealth fund

Erdogan appoints himself chairman of Turkey's sovereign wealth fund

The lira has lost 40 percent of its value against the U.S. dollar this year over concerns about Mr Erdogan's influence and a diplomatic spat between Ankara and Washington but firmed to 6.01 following the interest rate decision, from more than 6.4176 beforehand.

The lira firmed to 6.01 against the dollar following the decision, from more than 6.4176 beforehand.

Thursday's decree and Erdogan's remarks come after the lira's drastic fall in value against the USA dollar last month, during one of the worst diplomatic rows between North Atlantic Treaty Organisation allies Washington and Ankara.

The bank's Monetary Policy Committee raised the one-week repo rate to 24 per cent, meaning it has now increased interest rates by 11.25 percentage points since late April in an attempt to put a floor under the tumbling currency.

We will see the results of central bank independence after the rate hike.

"If you think inflation is the cause and interest rates are the result, it means you don't know about this matter, my friend".

Now Erdogan, long derided for his contrarian view that cutting rates slows inflation, is suddenly being lauded for allowing monetary authorities to follow orthodox prescriptions for common ills - all while enhancing his reputation as the defender of small businesses struggling with the rising price of money.

Right before the bank acted, Erdogan decried high interest rates as a "tool of exploitation".

President Recep Tayyip Erdogan had preceded the lender's announcement with a speech that slammed interest rates - a frequent bugbear of his - briefly spurring speculation that the bank would not move to arrest the slide of the currency and prevent the potential spread of Turkey's currency woes to other emerging economies. It later shed some of those gains but was still up almost three percent in value at 6.16 to the dollar after 1330 GMT.

In a decision announced earlier on Thursday, he ruled that property sales and rental agreements must be made in lira, putting an end to such deals in foreign currencies.

It said the policy would be "maintained decisively until inflation outlook displays a significant improvement".

"The central bank is independent and makes its own decisions", he said.

The bank implemented what economists described as a hidden interest rate hike in mid-August, forcing banks to borrow at the higher 19.25 percent through the overnight lending facility.

He said Turkey also needed to resolve a dispute with the United States, which helped drive the lira to a record low of 7.24 against the dollar a month ago, and rebalance the economy away from big infrastructure projects and consumer spending.

The warning came after his US counterpart, Donald Trump, escalated a feud by doubling tariffs on metals imports.

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