Turkey CB Delivers Massive Rate Hike Despite Erdogan's Calls For Cut

The president will oversee financing for large state development projects

The yield on benchmark 10-year Treasury notes rose to 2.9701 percent compared with its US close of 2.964 percent on Thursday.

Global investors broadly welcomed the move. Economic orthodoxy suggests the opposite.

The 2-year US2YT=RR Treasury note, heavily influenced by Fed policy expectations, fell 1/32 in price to yield 2.7606 percent, from 2.748 percent late on Wednesday.

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. Last year, against conventional wisdom, he argued that high interest rates actually cause inflation.

President Tayyip Erdogan of Turkey on Friday again blamed the U.

The central bank indicated further rate hikes could be in the offing.

Morgan Stanley economist Ercan Erguzel highlighted financial stability concerns and said he expected the central bank to tighten the repo rate by 425 basis points to 22.0 per cent.

USA producer prices unexpectedly fell in August, recording their first drop in 1-1/2 years and denting talk of accelerating inflation following Friday's strong wage data. The higher rates should help stabilize the lira by attracting foreign investments while slowing down price growth and inflation.

Countering President Recep Tayyip Erdogan, Turkey's central bank raised its benchmark interest rate more than anticipated to stabilize the country's finances.

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The rand gained 1.3% on Thursday following the rate hike.

Morgan Stanley said it saw a 70 percent probability of no move and a 30 percent chance of a hike.

The World Bank and International Monetary Fund repeatedly have called on Ankara to rein in spending, which they say is fueling inflation.

It remains to be seen how the news will sit with Erdogan, however. The decision also concerns vehicle leasing.

Washington took the punitive measures in protest at Ankara's detention of American Pastor Andrew Brunson, who has been accused of having links with terror organizations in Turkey.

Earlier, the USA has imposed sanctions on two Turkish government ministers and doubled tariffs on Turkish steel and aluminum imports over the continued detention of American pastor Andrew Brunson on espionage and terror-related charges.

However, speaking to Middle East Eye, Julian Walker, a director at Spot Blue, a UK-based company that specialises in property in Turkey, said: "I don't think this move will be bad for business".

Erdogan's comments sent the Turkish lira down by as much as 3% against the USA dollar. He added that the lira was experiencing "fake volatility", repeating his view that the currency's fall was part of a foreign plot and the result of an economic war. Analysts estimate about $100 billion in foreign currency loans have to be repaid by the private sector in the coming year.

The downside to higher rates is that these will boost local borrowing costs and crimp domestic demand. And most analysts predict the Turkish economy is heading into a recession.

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