Turkey raises interest rate to 15% from 8.5% to fight inflation

 

 Turkey raises interest rate to 15% from 8.5% to fight inflation

ISTANBUL -- Two weeks after President Recep Tayyip Erdogan appointed former Goldman Sachs banker Hafize Gaye Erkan as governor, Turkey's central bank delivered a 6.5-point interest rate hike on Thursday, lifting the benchmark rate to 15%.

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Erdogan ranted against interest rates and raised doubts about the independence of the Central Bank, vowing even tighter control of the economy. 

“Interest is the mother of all evil.” Erdogan has repeatedly said he believes that high interest rates cause inflation, flying in the face of the economic rule that tightening the monetary supply reduces inflation. Some of his defenders say that his idea is rooted in the economist Irving Fisher, who held that a country could pull itself out of deflation by raising interest rates. Erdogan has been railing against the interest rate lobby since the beginning of his career, and financiers for a while gave him a pass as a politician cushioning the side effects of economic reality. Now, it’s apparent that Erdogan’s hostility toward interest is more philosophical, based in Islamic and Christian views of usury as sinful. What’s more, his vocal opposition to the wishes of his own Central Bank governors has worried investors about the independence of that institution.

“Many foreign investors over the years thought that Erdogan’s views of high interest rates was a standard politician’s criticism of rates,” says Inan Demir, an economist at Nomura, a Japanese financial holding firm. “But more recently, especially after Erdogan’s most recent statements in front of foreign investors in London, most people think it’s different, and it’s more deep-rooted in his belief system.”