Erdogan says Turkey in struggle over rates and inflation

ANKARA (Reuters) - Turkey is in a “historic struggle” against those seeking to shackle it with high interest rates, inflation and exchange rates, President Tayyip Erdogan said on Tuesday after naming a new finance minister in a leadership reshuffle.

Overnight, Erdogan appointed former deputy prime minister Lutfi Elvan to the post, replacing his son-in-law Berat Albayrak who resigned on Sunday in a move that surprised many in the ruling AK Party.

The political upheaval began in the early hours on Saturday when Erdogan replaced the central bank governor with former finance minister Naci Agbal, raising hopes for an interest rate hike that could boost the beleaguered lira and ease double-digit inflation.

But Erdogan - a self-declared enemy of high interest rates - returned to a theme he has repeated as Turkey’s economy has been hit by two bad slumps in as many years.

“We are in a historic struggle against those who want to force Turkey into modern capitulations through the shackles of interest rates, forex rates and inflation,” he said in a speech.

Turkey will overcome political obstacles to work on improving economic growth, employment and exports, he told a ceremony commemorating modern Turkey’s founder, Mustafa Kemal Ataturk.


Elvan’s appointment, announced in the country’s Official Gazette, came after Albayrak announced on Sunday that he was resigning for health reasons.

Elvan, an AK Party member, was development minister between 2016 and 2018 and before that served as a deputy prime minister.

At 1000 GMT, the lira TRYTOM=D3 was down 2.1% at 8.22 against the dollar, after weakening to as far as 8.385. It has shed 29% this year to a series of record lows and is the worst performer in emerging markets.

Turks have snapped up hard currencies at record levels amid concerns over negative real rates, high inflation, depleted central bank FX reserves and the risk of Western sanctions over Turkish foreign and defence policies.

While Erdogan has publicly endorsed low rates, newly-installed governor Agbal said on Monday the central bank would “decisively” use all policy tools to achieve its main goal of price stability, teeing up a possible rate hike.

Goldman Sachs analysts said after the Elvan appointment that they were sticking with a forecast for a hike in the policy rate to 17% by year-end from 10.25% currently.

But in a note, they cautioned against over-interpreting the appointments of Agbal and Elvan.

“Most importantly, we think that whether there will be enough political support to bring about the required tightening will be the main issue,” they wrote.

Writing by Daren Butler; Editing by Jonathan Spicer and Gareth Jones