Lira plunges again after Erdogan rules out higher rates

Turkey's troubled lira shed a further five per cent against the dollar on Monday after President Recep Tayyip Erdogan cited Muslim teachings to justify not raising interest rates to stabilise the currency.

Erdogan has pushed the central bank to sharply lower borrowing costs despite the annual rate of inflation soaring to more than 20pc.

Economists believe the policy could see consumer price increases reach 30pc or higher in the coming months.

But Erdogan said in remarks aired by state television late on Sunday that his Muslim faith prevented him from supporting rate hikes.

“They complain we keep decreasing the interest rate. Don't expect anything else from me,” he said in the televised comments.

“As a Muslim, I will continue doing what our religion tells us. This is the command.”

Islamic teaching forbids Muslims from receiving or charging interest on loaned or borrowed money.

Erdogan has previously cited his Muslim faith in explaining why he believes interest rates cause inflation instead of tamping it down.

High interest rates are a drag on activity and slow down economic growth.

But central banks raise their policy rates out of necessity when inflation gets out of hand.

The Turkish lira has now lost nearly half its value in the past three months.

It was trading down nearly 6pc on Monday morning.

A dollar could buy 7.4 liras on January 1. It was worth 17.4 liras on Monday.

“You cannot run a modern economy integrated into the global economy on this basis,” economist Timothy Ash of BlueBay Asset Management said in a note to clients.

“Even Saudi Arabia really does not attempt full shariah compliant macro[economic] management.“

 

source https://www.suchtv.pk/world/item/110296-lira-plunges-again-after-erdogan-rules-out-higher-rates.html