Turkish President Recep Tayyip Erdogan warned Wednesday about the dangers of high interest rates ahead of the first central bank rate decision since the gutting of his old economic team.
Erdogan’s comments saw the lira immediately lose 0.7 percent against the dollar.
Turkey’s beleaguered currency had clawed back nearly 10 percent of its value since Erdogan accepted his son-in-law Berat Albayrak’s shock resignation as finance minister last week.
Albayrak left after reportedly resisting the appointment of the market-friendly former finance minister Naci Agbal as the new central bank governor on November 7.
The reshuffle and Erdogan’s subsequent promise to give his new economic team a free rein to right the economy sparked a sharp rally on the Turkish market.
The markets expect the new governor to hike the main interest rate from 10.25 percent – where it has stood since being raised for the first time in two years in September – to between 14 and 15 percent at a policy meeting Thursday.
But Erdogan told an economic meeting in the capital Ankara on Wednesday that he still opposed “high” interest rates.
“We should not let our investors be oppressed by high interest rates,” Erdogan said in televised remarks.
“What high interest rates cause is obvious. Can we do business with high interest rates? Can we create employment? It’s not possible,” he said.
Erdogan subscribes to the unorthodox belief that high interests rates cause inflation instead of slowing it down by raising the cost of doing business.
He calls high rates the “mother and father of all evil” and fired a central bank governor who was raising them in an attempt to slow down inflation and support the lira in 2019.
Goldman Sacks estimates that Turkey’s central and state-run banks have burned through $140 billion since the start of 2019 buying foreign currencies in a losing effort to prop up the lira.
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