Erdoğan vows no zigzagging on interest rates as lira weakens 4 pct

Turkish President Recep Tayyip Erdoğan on Monday once again defended his recent interest rate cuts that sparked a crash in the lira, saying he would never defend interest rate hikes or compromise on the issue.

The remarks by Erdoğan to reporters on his flight back from Turkmenistan visit, as reported by Turkish network NTV, prompted the lira to weaken as far as 12.85 against the dollar before dipping again to 12.77 by 11:50 GMT, according to Reuters, 4.1 percent weaker on the day.

“I have never defended raising interest rates, I don’t now and will not defend it … I will never compromise on this issue,” NTV cited the Turkish leader as saying. 

“You will see, God willing, how far inflation falls before the election,” The Turkish president added. “The interest rate lobbies are seething.”

The lira slumped to a record low of 13.52 per dollar earlier this month, prompting state-run banks to intervene in the currency market, after Erdoğan said Turkey was committed to extending a series of interest rate cuts even as inflation accelerated to almost 20 percent. He vowed to emerge victorious from an “economic war of independence”.

Meanwhile, Erdoğan has instructed the State Supervisory Council (DDK), an auditing authority that reports to the presidency, to identify companies or individuals who have bought large amounts of foreign currency and to ascertain whether manipulation occurred, the state-run Anadolu news agency and other local media reported at the weekend.

Erdoğan has frequently accused foreign financial institutions and local partners of seeking to profit unfairly from declines in the lira since a currency crisis rocked the country in 2018.

On May 8 last year, the authorities banned Citibank, UBS and BNP Paribas from trading in the lira, saying they had failed to meet obligations to local banks in the offshore swaps market. The lira was trading at around 7 per dollar at the time of the ban, which ended four days later. Foreign banks are among institutions who frequently look for ways to short the lira in times of currency turbulence.

The central bank cut interest rates to 15 percent from 16 percent in November. Borrowing costs had stood at 19 percent in September.    

The bank next meets on interest rates on Dec. 16.

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