In a bid to stabilize Turkey’s faltering currency, Turkish Central Bank boosted interest rates by more than 6 percentage points, to 24 percent, even though Erdogan has vowed keep them steady — or even lower them.
The central bank’s move makes Turkey’s interest rate one of the highest in the world. By way of comparison, the Federal Reserve’s much-debated rate hikes earlier this year nudged the rate just fractions of a percentage point to around 2 percent in the U.S.
Since then, he has continued to dismiss calls to raise rates to address Turkey’s longtime woes with its currency, the lira. In fact, he calls himself the “enemy of interest rates,” and was even pushing for lower rates as recently as Thursday morning.
But hours later, the Turkish Central Bank ignored Erdogan, raising interest rates to fight price increases and the risk of runaway inflation. The lira has lost roughly 40 percent of its value against the U.S. dollar this year, and its inflation rate sits at about 18 percent.
Several emerging markets have confronted the same struggles, dogged by a strengthening U.S. dollar that makes it more difficult for countries such as Turkey to pay back hefty external debt.
In a speech to a traders’ confederation in Ankara, Erdogan said that Turkey’s central bank is independent and makes its decision on interest rates on its own, but added that his stance on high borrowing costs remained unchanged.
On Thursday, the Turkish Central Bank exercised that independence — and appeared to reassure investors in the process. The lira’s value leaped on news of the decision.
It remains to be seen how the news will sit with Erdogan, however. Shortly after his election win this past summer, he installed his like-minded son-in-law as the country’s finance minister.
Right before the bank acted, Erdogan decried high interest rates as a “tool of exploitation.”