Turkish Lira slides after Erdoğan says he wants greater economic control

LONDON/ISTANBUL

Turkey’s embattled currency slid to a fresh record low and bond yields briefly touched their highest in at least eight years on May 15, after President Recep Tayyip Erdoğan said he plans to take greater control of the economy after elections next month.

Erdoğan’s comments, in an interview with Bloomberg Television in London, reinforced long-standing concerns about the president’s drive to shape monetary policy and blunt the Central Bank’s ability to rein in double-digit inflation.

He said the Central Bank was independent but would not be able to ignore signals from the head of the executive once the switch to a presidential system was complete following the June vote.

“I will take the responsibility as the indisputable head of the executive in respect of the steps to be taken and decisions on these issues,” he said in the interview broadcast on May 15.

His comments helped push the ailing lira to a fresh record low of 4.43 against the dollar, bringing its losses this year to 14 percent, according to Reuters data.

Yields on 10-year government bonds briefly touched their highest since at least January 2010.

A self-described “enemy of interest rates,” Erdoğan wants to see lower interest rates to fuel credit growth, particularly to the construction industry.

“We are a bit concerned,” said Dietmar Hornung, an associate managing director and head of European Sovereigns at ratings agency Moody’s, at a conference in London.

“Clearly some of the macro trends that we are seeing are headwinds for Turkey, rising interest rates, dollar strength, commodity prices going up, it’s all credit negative,” Hornung said, as quoted by Reuters on May 15.

Erdoğan said that citizens would ultimately hold the president responsible for any problems generated by monetary policy. The Turkish president has also long claimed that high inflation is caused by high interest rates, against conventional wisdom among economists.

“They will hold the president accountable. Since they will ask the president about it, we have to give off the image of a president who is effective in monetary policies,” he said.

“This may make some uncomfortable. But we have to do it. Because it’s those who rule the state who are accountable to the citizens,” he added.

‘Mother of all evil’

Last week, Erdoğan once again described interest rates as the “mother of all evil,” vowing that Turkey will “emerge victorious in its fight against interest rates” after the June 24 snap elections.

Addressing businesspeople at a ceremony in Ankara on May 11, Erdoğan took aim at “foreign exchange speculators, interest rate lobbies and enemies of Turkey under the guise of credit rating firms.”

“My belief is that interest rates are the mother of all evils. Interest rates are the cause of inflation. Inflation is a result, not a cause. We need to push down interest rates,” he said at the event, organized by the Turkish Union of Chambers and Commodity Exchanges (TOBB).

“If my people say ‘continue on this path’ in the election, I say I will emerge victorious in the fight against this curse of interest rates. We must bring down the interest rates,” Erdoğan said.