Turkey’s biggest headache, its crashing currency which the central banks appears unable to contain due to an Erdogan order not to hike rates, could soon translate into another major problem. According to two senior economy officials, Turkish inflation could reach double digits in the first quarter for the first time in almost five years as a result of the lira’s falls, putting more pressure on the central bank to hike interest rates.
The lira has dropped as much as 10 percent since the start of 2017, battered by concern over Turkey’s political and economic outlook and doubts about whether the authorities will take decisive steps to arrest the slide. Earlier in the day, Turkey’s deputy prime minister, Numan Kurtulmus in an interview with AHaber TV, reiterated the party line that the lira weakening is the result of political manipulation. He also said that ‘an intelligence organization’ might be behind the new year’s eve attack in a nightclub in Istanbul, the latest terrorist attack on Turkish soil, which has added to concerns about local geopolitical instability, further destabilizing the tourism-heavy economy.
According to Reuters, President Tayyip Erdogan, a vocal opponent of higher interest rates, will meet with economy officials including the central bank governor later on Monday to discuss developments including the lira, government sources said. Earlier on Monday, the central bank effectively shut off two of its lira funding taps, bankers said, in an attempt to push lenders to borrow at a higher rate and defend the currency without an outright rate hike. The lira was trading at 3.80 to the dollar, at the day’s lows, off a recent record low of 3.9417 hit last Wednesday.
This post was published at Zero Hedge on Jan 16, 2017.