Turkey's central bank hikes key interest rate to 24 percent

DXY Index Sideways Grind Continues ahead of BOE ECB Tomorrow

"Interest rates are the cause, inflation is the result".

Its monetary committee chose to "implement strong monetary tightening to support price stability", it said on Thursday, as it raised interest rates by 625 basis points in the face of a spike in inflation and a slump in the lira. But it still expects to end its 2.6 trillion euro asset purchase scheme by the end of the year, suggesting that a formal decision on ending quantitative easing will come later. "If you say ´inflation is the cause, the rate is the result´, you do not know this business, friend", he added.

The currency has lost 40 percent of its value against the dollar this year, hit by concerns about Erdogan's influence on monetary policy and more recently by a diplomatic spat between Turkey and the US.

"Erdogan's comments clearly show that he does not support this and it becomes much more hard, if not impossible, for the Turkish central bank to tighten enough to stabilize the lira and get inflation under control", Esther Reichelt, a forex strategist at Commerzbank in Frankfurt, told DW.

Erdogan, a self-described "enemy of interest rates", picked his son-in-law, Berat Albayrak, as finance minister in July.

"As of today, I have not seen the central bank fix inflation rates as they promised", Erdogan went on.

The sense of doom was compounded on August 1, when the USA imposed selective sanctions on Turkey over the detainment of an American pastor.

"My sensitivities concerning interest rates are the same, nothing has changed", he said.

At a Tehran summit on Friday with his Iranian and Russian counterparts, an agreement was reached to use local currencies for trade deals, Anadolu reported, citing Iran's central bank governor Abdolnaser Hemati.

Who is responsible for Turkey's lira crisis?

Some analysts predict that the decree on property transactions could have a negative impact on property sales in Turkey, especially by overseas investors. "Reorganizing the wealth fund is a must", he said.

The revamp was the latest in a series of steps Erdogan has taken to assume new powers since he won a presidential election in June, heralding the move to an executive presidency which grants sweeping authority.

Last September, Erdogan said the fund had failed to realize a "targeted and desired" outcome.

Zafer Sonmez, head of Turkey and Africa for Malaysia's government investment vehicle Khazanah Nasional Bhd, was named general manager. Its portfolio includes 100% ownership of Turkish Petroleum, Borsa Istanbul and Ziraat Bank, as well as shares in national carrier Turkish Airlines (49.12%) and Halk Bank (51.11%).

The fund was created in the wake of an attempted coup in 2016 to help fund infrastructure projects and shore up markets.