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Erdogan blames speculators, U.S. dollar for lira’s fall

Erdogan addresses the provincial governors of Turkey during a meeting at the Presidential Palace in Ankara.

ANKARA/ISTANBUL: President Recep Tayyip Erdogan blamed an “interest rate lobby” of speculators for the Turkish lira’s slide and said he would discuss its decline with the country’s embattled central bank and the government’s economy czar.

The lira briefly recovered from record lows following his comments, with investors encouraged that he had refrained from his usual criticism of the central bank and which followed meetings between his economic team and investors in New York.

Another senior official also said it was time to stop talking about the central bank as its members were doing their job, in remarks which may also please investors worried about complaints from Erdogan, eyeing the June election, that the central bank has not cut interests rates sharply enough.

However, the currency slid to a fresh record low after U.S. jobs data boosted the dollar.

“There is the known work of the interest rate lobby and the latest developments are completely due to dollar-euro moves,” Erdogan told reporters in Ankara. “Those who invest excessively in the dollar may end up being stranded.”

Speaking later to Turkish broadcaster NTV, Deputy Prime Minister Bulent Arinc called for an end to political pressure on the central bank, in comments criticizing Erdogan’s recent hectoring of the lender.

“I don’t think it is right to say to the central bank ‘you are acting incorrectly,’ going outside legal boundaries and intervening in their duties,” Arinc said.

The lira firmed to below 2.58 against the dollar from an all-time low of 2.6290 overnight after Erdogan’s remarks but weakened to a fresh record low of 2.6365 after the U.S. data.

Timothy Ash, head of emerging markets strategy at Standard Bank in London, said it was “encouraging” how the lira had rallied after Erdogan’s comments, “which are hopefully an attempt to ease back tensions with the central bank.”

“It is all to do with efforts to undermine the credibility of the central bank and the [ruling] AK Party’s tried and tested economy team,” he said. “If you keep banging the line that you don’t believe/agree with the policies of the central bank, well eventually the market might begin to believe you.”

Erdogan said both central bank governor Erdem Basci and Deputy Prime Minister Ali Babacan, who is in charge of the economy but whose future is uncertain, had requested talks with him and that they would meet after Babacan returns from a visit to New York.

Babacan, a prominent figure in Turkey’s economic management team for more than a decade and widely respected by foreign investors, has been meeting fund managers and bankers in New York over the past two days with Prime Minister Ahmet Davutoglu and Finance Minister Mehmet Simsek.

Speaking in New York, Davutoglu said he had talked to Basci about the lira’s weakness and that “every kind of measure” would be taken, comments which also took some pressure off the battered Turkish currency.

The central bank, unable to hike rates to defend the lira because of the political pressure, tightened liquidity Friday by providing less lira to the market through its repo auction.

It injected 20 billion lira, some 5 billion short of market requirements, in a move some analysts dubbed a “covert rate hike” and which pushed overnight interest rates up to 10.6 percent from 10.3.

The meetings with New York investors, who between them hold more than a fifth of the main Turkish stock index, appeared not to have been an unmitigated success, according to some of those who took part.

“Nobody asked particularly tough questions because the investors were aware that it’s Erdogan who calls the shots,” said one banker briefed by a colleague who attended one of the meetings, describing the tone as “formal and polite.”

Babacan, who has led similar investor meetings in the past, was uncharacteristically quiet, the banker said. His defense of the central bank has made him look increasingly unlikely to return after the June general election.

“There was nothing really very convincing that suggested things are on track,” the banker said.

Ibrahim Turhan, a former deputy central bank governor and ex-chairman of the Istanbul stock exchange, was among the delegation. Some political and market sources said he was being groomed for a possible role in the new economic management team.

A senior government official said Davutoglu trusted Turhan and confirmed that he could be a candidate for a top post, but declined to comment further.

The main Istanbul index fell 0.09 percent by 1440 GMT, outperforming a 0.44 percent fall by the broader emerging markets index.

 
A version of this article appeared in the print edition of The Daily Star on March 07, 2015, on page 4.

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