Erdogan appoints himself chairman of Turkey's sovereign wealth fund

Erdogan appoints himself chairman of Turkey's sovereign wealth fund

Turkey ruled on Thursday that property sales, rental contracts and leasing transactions must be made in lira from now on, halting the use of foreign currencies for such deals in a fresh step to support the ailing local currency.

"It nearly seems like it's a game of "good cop, bad cop" being played out between the Turkish authorities - with President Erdogan on the one hand still making statements regarding his dislike of interest rates and. a very sizeable reaction from the central bank in response to the recent inflationary and geopolitical developments", she said.

The Turkish lira gained to its strongest level against the dollar this month amid speculation that the central bank will increase interest rates on Thursday to stem double-digit inflation.

The lira TRYTOM=D3 has lost some 40 percent of its value against the dollar this year over concerns about Erdogan's influence on monetary policy and a diplomatic spat between Turkey and the United States.

There had been indications from Turkey's central bank that it would raise rates, after inflation came in at almost 18% in August, according to official data.

While the lira's plight has made it "rational to expect at least 1000 basis points" added to interest rates, opposition to higher borrowing costs among Turkish officials made a smaller increase more realistic, Rabobank currency strategist Piotr Matys said before the decision.

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

The fall in the value of the lira in recent months has pushed up the price of everyday items in Turkey and raised fears the country is sliding into an economic crisis.

"Accordingly, the Committee has chose to implement a strong monetary tightening to support price stability", it said.

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".

It vowed the tight stance in monetary policy would be "maintained decisively until inflation outlook displays a significant improvement".

It stood at 6.4550 against the dollar at 1012 GMT, weakening sharply from Wednesday's close after Erdogan said high inflation was a result of the central bank's wrong steps.

He earlier charged the bank with failing to control inflation and again aired his unorthodox view that low rates bring inflation down.

"Interest rates are the cause, inflation is the result".

The bank later said funding would be provided via the policy rate, the one week repo auction rate, instead of through overnight lending from September 14.

As well as being seen to undermine the independence of the central bank, Erdogan in July stunned markets by appointing his son-in-law Berat Albayrak as finance minister.

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