Turkey boosts lira as central bank surprises markets with big rate hike

Erdogan appoints himself chairman of Turkey’s sovereign wealth fund

"Turkey's Wealth Fund has appointed President Recep Tayyip Erdogan as its new chairman, according to a notification in the Official Gazette", state news agency Anadolu said.

The central bank's interest rate hike, which surprised investors with its magnitude, comes amid growing concerns that Erdoğan is pursuing policies that will eventually bankrupt the country.

Before the move by policy makers in Ankara Thursday, the run on the currency forced the central bank to deliver some tightening where it could.

"Deterioration in the pricing behaviour continues to pose upside risks on the inflation outlook, despite weaker domestic demand conditions", the bank added.

It said: "Accordingly, the committee has chose to implement a strong monetary tightening to support price stability".

The lira reacted strongly to the rate rise, initially up 5% in value to 6.0 lira to the U.S. dollar, later settling up more than 2.7% at 6.15 to the dollar.

Against expectations, the central bank did not raise rates at its last meeting in July.

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.

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The bank must balance concerns over slipping growth, which, although a robust 5.2 per cent in the second quarter on an annual comparison, showed signs of weakness with some analysts predicting Turkey is heading for recession.

Turkey's central bank has raised its key interest rate to 24% in a dramatic bid to control rocketing inflation and prevent a currency crisis.

Ignoring calls for restraint from President Recep Tayyip Erdoğan, the bank raised its main short-term rate from 17.5% following weeks of pressure from global investors.

"Interest rates are the cause, inflation is the result". Erdoğan has always been pressuring the bank to keep interest rates low to encourage economic growth. "If you say ´inflation is the cause, the rate is the result´, you do not know this business, friend", he added.

The bank later said funding would be provided via the policy rate, the one week repo auction rate, instead of through overnight lending from September 14.

"For a country that is in really deep distress like Turkey, what is important is to restore some of the independence of the central bank and take measures to stem the currency's fall".

Turkey's currency and inflationary troubles are also compounded by the threat of steel and aluminium tariffs from the United States as well as sanctions over the detention of an American evangelical pastor.

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