Turkish lira slides after Erdogan takes aim at central bank for hiking rates

Turkish
President Tayyip Erdogan makes a speech during his meeting with
mukhtars at the Presidential Palace in Ankara, Turkey, March 16,
2016.
REUTERS/Umit
Bektas

• Turkey’s central bank raised its benchmark interest
  rate sharply Thursday.
• The Turkish lira rallied briefly, but fell after
  President Recep Tayyip Erdogan criticized the central bank for
  the move.
• 
  Follow
  the Turkish lira in real time here.
  

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Turkey’s
currency slid Friday as President Recep Tayyip Erdogan

took aim at its central bank for sharply raising its
benchmark interest rate a day before.

The lira
fell as much as 1.6% against the US dollar
after Erdogan, a self-proclaimed enemy of interest
rates, suggested to members of the ruling party in Ankara he was
losing patience with the Central Bank of the Republic of
Turkey. 

“It’s currently my phase of patience but there is a
limit 
to this patience,” Erdogan said of the
rate hike, according to Bloomberg, before restating the
unorthodox claim that interest rate hikes won’t help stem
inflation. He also  warned Turkey would see the
“results of the independence” of the regulator.

The lira had climbed Thursday after the CBRT raised its key
rate by 625 basis points to 24% in a move
that  underscored CBRT’s intent to
remain independent of Erdogan. The president has increasingly
tried to wield influence over monetary policy since his
reelection this year.

Still, strategists warn the rate hike could backfire. Thierry
Wizman of Macquarie Research wrote in a note that the renewed
criticism of the CBRT could embolden government officials to
pursue more executive power over the central bank, especially if
the lira fails to stabilize.

“If it is not effective, Erdogan’s influence and political
capital as it pertains to monetary policy will rise,” Wizman
said. “These are the potential ‘non-linearities’ that confront
Turkey when the policy backdrop is so politically charged, which
is itself a huge source of risk.”

The lira
has been one of the worst-performing currencies this year,
shedding more than 60% of its value against the dollar since
January.

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