Turkey's Erdogan renews call for substantial interest rate cut

By bne IntelliNews March 29, 2017

Turkish President Recep Tayyip Erdogan on March 29 reiterated his discontent with the present level of interest rates, calling on banks to lower their lending costs.

“I am against the interest rates. They should come down significantly,” Erdogan said in a speech in Ankara.

Disputing orthodox economic theory, Erdogan has previously argued that high interest rates cause inflation.

In February this year, he protested that “the interest rate policy implemented in Turkey is an instrument of exploitation”.

Investors see such comments as putting political pressure on the central bank that interferes with the independence of the national lender.

Erdogan’s latest remarks on interest rates, however, did not have any impact on Turkey’s markets. The lira was trading 0.46% higher against the dollar at 3.6408 as of 13:00 local time.

The main stock exchange index, the BIST-100, was down 1.18%, but the decline in the index was led by Halkbank. Its shares plunged nearly 14% in morning trading on March 29 on news that one of its executives was arrested in the US on charges of conspiring to evade trade sanctions imposed on Iran.

Turkey's central bank will next meet on April 26 to review its rates. That meeting will take place 10 days after the critical referendum on constitutional reforms that would create an executive-style presidency with sweeping powers.

This month, the national lender kept its main interest rated unchanged, but raised the late liquidity window rate by 75bps to 11.75%.

 

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