Erdogan Calls for Lower Rates as Fed Lift-Off Expectations Grow

  • Turkey's President says market rates should near all-time lows
  • Erdogan: lower borrowing costs needed to bolster investments

Turkish President Recep Tayyip Erdogan called for even lower borrowing costs in the country, possibly setting monetary policy on a reverse course from the U.S. Federal Reserve.

Turkey must bring “market rates of interest” closer to historical lows of about 4.6 percent from more than 10 percent now, Erdogan said in a television interview on Wednesday night. Commercial banks are asking for even higher rates, slowing investments and growth, the president said. The central bank is independent under Turkish law, though many analysts say Erdogan’s repeated demands for lower borrowing costs add pressure on policy makers.

Erdogan’s latest request comes as U.S. Fed policy makers said that an interest-rate increase would be considered at their “next meeting,” which is scheduled for Dec. 15-16. His comments may limit central bank Governor Erdem Basci’s room to manoeuvre as he seeks to slow inflation, Tim Ash, the head of credit strategy for Europe, the Middle East and Africa at Nomura International Plc, said by e-mail.

“Many in the market would have serious doubts about this and especially with the Fed signaling quite strongly now a rate rise in December,” Ash said. “This probably just heaps pressure on the central bank and makes it more difficult for them to do the right thing, and to make the right policy choices.”

The lira surged Thursday along with other emerging market currencies on expectations that the Fed’s rate rises may be gradual. The currency was trading 0.3 percent higher at 2.8539 per dollar at 9:22 a.m. in Istanbul. The yield on Turkey’s two-year benchmark lira notes was 10.41% on Wednesday, compared with the historical low of 4.79% seen in May 2013.

Since moving into the presidential office in 2014, Erdogan has acted as the de-facto executive head even though the role has been traditionally a ceremonial one. He has called for a new constitution to change Turkey’s parliamentary political system to an executive presidency. In Wednesday’s interview, Erdogan said such a shift would likely be approved should it be submitted to a referendum.

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