Turkish lira hits new high amid rate hike talk

Erdogan appoints himself chairman of Turkey's sovereign wealth fund

Erdogan appoints himself chairman of Turkey’s sovereign wealth fund

The slump in the lira has been driven by concerns about Erdogan's influence on monetary policy, and more recently a bitter row with the United States that saw the North Atlantic Treaty Organisation allies impose reciprocal trade restrictions and sanctions on each other.

The appointment of Berat Albayrak boosted expectations the president - who wants to see lowering borrowing costs to spur credit growth and new construction - will look to exercise greater influence over monetary policy.

Erdogan has been a fierce opponent of raising rates and some investors in the Turkish economy had fears he could be interfering in the central bank's affairs.

"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.

The currency has plunged in recent months and even after Thursday's rise was down nearly 39% against the dollar this year.

The lira reacted strongly to the decision, rising by 5 per cent in value to 6.0 lira to the U.S. dollar.

The main share index rose 2.1 per cent, with the banking index up 4.8 per cent. Dollar-denominated bonds issued by the Turkish government rose across the curve. The rate hit the lowest level in two weeks. For now though, this should provide the lira a much needed relief in the short-term.

"Obviously, it will have negative consequences on the economy but, I would say, it is less important if you have a hard landing than big corporate defaults due to a vicious cycle between (lira) depreciation and inflation", he said.

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"We will see the result of the Central Bank's independence".

Erdogan previous year said the fund needed a "reorganisation" after the first chairman Mehmet Bostan was removed from his post in September 2017.

Neil Wilson, chief market analyst at Markets.com said: "This was a definite statement from policymakers, but the risk now is that the market tries to test the central bank's resolve: the horse may have already bolted".

There had been indications from the bank that it would raise rates after inflation came in at almost 18 per cent in August, according to official data last week.

That decision sent the lira tumbling by a quarter and prompted Turkish authorities to impose a series of measures meant to support the currency.

Erdogan has cast the lira crisis as an "economic war" targeting Turkey and has repeatedly urged Turks to sell their dollar savings to shore up the lira.

The lira's gains is also proving to be a positive across emerging markets as well with the rand and rouble also gaining on the day, both currencies up by more than 1% against the dollar.

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