U.S. behind ‘economic assassination attempt’ on Turkey - Erdogan

Erdogan appoints himself chairman of Turkey’s sovereign wealth fund

The slump in the lira has been driven by concerns about Erdogan's influence on monetary policy, and more recently a bitter row with the United States that saw the North Atlantic Treaty Organisation allies impose reciprocal trade restrictions and sanctions on each other.

Its decision came despite Erdogan repeating his opposition to high interest rates earlier in the day, saying high inflation was a result of the central bank's wrong steps. It had fallen 3 per cent after President Erdogan had called for rate cuts rather than rate hikes and then surged to be 3 per cent up on the day when those calls were spectacularly ignored.

Policy makers increased the one-week repo rate by 625 basis points on Thursday to 24%, more than econ%mists expected.

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".

Erdogan said last September that the fund was to be reorganised after dismissing Mehmet Bostan, its chairman, over its failure to meet targets.

Speculation has been growing that the monetary authority will deliver a sizeable interest-rate increase Thursday after it signalled potential action last week to help stem accelerating inflation.

Washington imposed sanctions on two government ministers and doubled tariffs on steel and aluminum imports from Turkey.

Phoenix Kalen at Societe Generale said the market was both pleased and confused by the bank's move.

But analysts say the move will not be enough to quickly erase worldwide investors' concerns, as the country has fundamental economic problems, such as a high level of debt owed in foreign currencies that has grown in size as the lira has fallen.

Erdogan, a self-described "enemy of interest rates", assumed new powers under an executive presidential system following an election in June and has appointed his son-in-law as finance minister.

Deniz Cicek, an economist at QNB Finansbank, said Turkey needed "an appropriate fiscal policy and structural reform agenda" that markets await to see in a medium-term plan to be outlined this month by Albayrak. Erdoğan has always been pressuring the bank to keep interest rates low to encourage economic growth.

Following the news, the Turkish lira rose 5 percent in value against the USA dollar, reversing its 42-percent fall this year against the American currency.

Turkish companies sit on a net foreign-exchange shortfall of $216 billion, and analysts say they are likely to view any bouts of lira strength as an opportunity to rebuild their dollar reserves, slowing any gains.

The Turkish lira gained ground against the US dollar on Wednesday ahead of Thursday's monetary policy committee meeting of the Turkish Central Bank. Erdogan also issued a presidential decree banning all businesses and leasing and rental agreements from using foreign currency denominations.

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