Turkey Raises Rates Sharply to Prop Up Lira

Turkish President Recep Tayyip Erdogan is facing a potentially severe crisis just a month ahead of elections over the sharp depreciation of the lira which risks buffeting his campaign and even influencing voters.

In an indication of the severity of the situation, the central bank hiked one of its key interest rates 300 basis points after an emergency meeting on Wednesday, after inaction for days amid Erdogan’s opposition to rate rises, AFP reported.

Erdogan has always painted himself as a champion of the Turkish economy, pointing to how growth and investment have expanded under his rule after the misery of Turkey’s 2000-2001 financial crisis.

But the lira’s depreciation by nearly 19% against the US dollar since the snap polls were called on April 18 may signal the economy could be a burden, rather than a boost, for Erdogan.

Although the country was the fastest growing in the G20 in 2017, recording 7.4% growth, concerns remain over the economy overheating, the widening current account deficit and double-digit inflation. Inflation is currently at 10.85%.

The central bank moved to raise the late liquidity window lending rate from 13.5% to 16.5% prompted a sharp rally in the value of the lira.

In polling done earlier this month by Ankara-based MAK Consultancy, 45% of 5,400 respondents told researchers the country’s most significant issue was the economy. Another survey last month by Gezici pollster found 48.6% said economic woes were Turkey’s biggest issue.

And Turks’ faith in their economy is falling: the consumer confidence index dropped by 2.8 percentage points in May to 69.9 from 71.9 in April, according to the Turkish statistics office.