Turkish central bank raises rates to stem currency crisis

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"Turkey is a country that has a net foreign debt of over $400 billion, and where 40 percent of [Turkish] deposits are in foreign currency, so the game could be over in a day".

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

In a rare show of independence, the bank raised its benchmark interest rate by 625 basis points, to 24 percent.

"We can not allow the use of the tool of exploitation that is interest rates", Erdogan told a meeting in Istanbul on Thursday.

Late on Thursday, Finance Minister Berat Albayrak told pro-government newspaper Sabah that the central bank's move had put an end to any discussions about the bank's independence, and said Turkey would unveil its medium-term economic program on September 20.

The central bank said there was still an upside risk to the inflation outlook from what it called a deterioration in pricing behaviour, despite weaker domestic demand conditions.

Turkish President Recep Tayyip Erdogan has ordered by decree that property agreements must be made in Turkish lira, in a new bid to prop up the country's beleaguered currency.

After rising as high as 6.01 to the dollar, the lira was at 6.1050 on Friday.

American economist Adam Posen known as the choice "the most hopeful thing for some time", expressing reduction that Turkey's central bank "had the heart" to hike charges in what became once viewed as defiance towards Erdogan.

The Turkish government is trying to stabilize the lira, which has plunged over 40 percent against the U.S. dollar this year.

The president underlined: "The Central Bank raised the interest rates considerably".

The two-year yield, sensitive to expectations of higher Fed fund rates, touched 2.7611 percent compared with a US close of 2.756 percent. It said it will continue to use all available instruments in pursuit of the price stability objective.

Turkey has a long tradition of carrying out business in foreign currencies to mitigate the threat of inflation and a falling lira.

Guillaume Tresca, senior emerging market strategist at Credit Agricole said the economy needed to slow down because it was overheating and that an interest rate rise was needed to cap lira depreciation. "If you think inflation is the cause and interest rates are the result, it means you don't know about this matter, my friend".

The bank´s intervention was the latest aggressive rate hike to calm economic turbulence in an emerging market after the Argentinian central bank´s recent hike from 45 to 60 percent on August 30.

While acknowledging that the central bank is independent, he also criticized it, saying it had consistently miscalculated inflation targets, and he portrayed the currency crisis as a foreign conspiracy. The decree also forbade signatories from indexing their transactions to foreign currencies, while ordering existing contracts in other currencies to be switched to the lira by October 12.

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