President Tayyip Erdogan said on Wednesday that Turkey’s businesses and employers are hampered by high-interest rates but added that lowering inflation is a priority, remarks that whip-sawed the lira ahead of a key central bank decision.
The currency rallied some 12% last week after Erdogan pledged a more market-friendly approach to the economy under a newly installed central bank governor and finance minister. Investors expect a big rate hike on Thursday.
But the lira <TRYTOM=D3> slid as much as 1% after Erdogan told business leaders it was impossible to boost employment, exports, and production due to “the cost of high-interest rates.”
“We have to be much more careful on this point and not allow our investors to be crushed by high-interest rates,” he said.
The lira regained its losses when the president – who investors say plays a big role in monetary policy decisions – said in the same speech that Turkey’s main priority is the fight against inflation, which has been stuck near 12% all year.
“Our aim is to reach single-digit inflation right away by maintaining fiscal discipline (and) implementing structural and micro reforms” focused on growth and employment, he said. “We will solve the problems before us in a way that is in line with market economy rules.”
A hike in the central bank’s key rate, now at 10.25%, could stall the economy’s rebound from coronavirus fallout but could also help avert a broader balance of payments problems by boosting the lira.