ANKARA, Turkey (AP) — Turkey's central bank on Thursday raised its key interest rate sharply, from 17.75 percent to 24 percent, to contain inflation and stem a currency crisis.
The bank raised its one-week repo rate significantly despite President Recep Tayyip Erdogan's renewed and public insistence that interest rates should not be increased.
The Turkish lira began to recover shortly after the rate hike, strengthening by 3.4 percent to 6.18 against the dollar.
The currency has plunged in recent months and even after Thursday's rise was down almost 39 percent against the dollar this year. Investors are mainly concerned about Erdogan's economic policies and an ongoing diplomatic and trade dispute with the United States over the detention of an American pastor on espionage and terror-related charges. Washington imposed sanctions on two government ministers and doubled tariffs on steel and aluminum imports from Turkey.
In a statement Thursday, the central bank noted that the local economy is weakening while inflation is rising. The rate hike could pinch growth more, but independent experts say it's needed to contain inflation of around 18 percent and support the currency.
"The Central Bank will continue to use all available instruments in pursuit of the price stability objective," the central bank's monetary policy committee said in a statement. "Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement."
Erdogan was re-elected this year as president with vastly expanded powers, and has long been pressuring the bank to keep interest rates low to encourage economic growth. Economic growth slowed to an annual rate of 5.2 percent in the second quarter, from the first quarter's 7.4 percent.
Addressing a meeting of Turkish tradesmen and artisans in Ankara, Erdogan said the central bank is independent and takes its own decisions. He repeated however, his belief that interest rates should be cut, calling them an "instrument for exploitation."
"My sensitivities concerning interest rates are the same, nothing has changed," Erdogan said. "I'm saying let's cut these high interest rates."
He criticized the central bank, saying it had consistently miscalculated inflation targets and again portrayed the currency crisis as a foreign conspiracy.
In a bid to shore up the Turkish lira, Erdogan's government issued a decree on Thursday banning the use of foreign currency in the sale and renting of property and the leasing of vehicles.
According to the decree, all sales and rental contracts agreed in foreign currency will be converted to Turkish lira.