May 9, 2018 / 6:03 PM / 4 months ago

Amid lira slide, Turkey's Erdogan unwavering on interest rates

ANKARA (Reuters) - Turkey’s Tayyip Erdogan and his economy team on Wednesday agreed to take measures to ease interest rates and help shield the tumbling lira, underscoring a deep split between the president and international investors hoping for tighter monetary policy.

FILE PHOTO: Turkish Lira banknotes are seen in this October 10, 2017 picture illustration. REUTERS/Murad Sezer/Illustration/File Photo

Erdogan, a self-described “enemy of interest rates” who believes they cause inflation, met with members of his economy team, the central bank governor and the heads of some of Turkey’s biggest top banks to address the sell-off in the lira.

While investors had been hoping for an indication that the central bank would get more leeway to tighten policy, Erdogan promised more of the same, according to a statement from the presidency following the end of the unscheduled meeting.

“Necessary measures will be taken to decrease the pressure on interest rates and exchange rates, and in turn battle more effectively with inflation,” the presidency said.

“The central bank will continue to use the instruments at its disposal effectively in this regard,” it said, without elaborating.

Banks are also advised to make loans more accessible to the real estate sector, the presidency said.

The lira TRYTOM=D3 weakened briefly after the statement from the presidency, although it was still firmer on the day, having reversed course from a record low hit in morning trade.

News that Erdogan was due to meet with the economy team had underpinned the currency for much of the trading day.

“PROPER DOSE”

“The market will be particularly looking for any indication that the central bank may have more room for maneuver to deliver a proper dose of monetary policy tightening,” Piotr Matys, an emerging markets forex strategist at Rabobank, said before the meeting.

The currency has been hammered this year on concerns about the central bank’s ability to rein in double-digit inflation. Erdogan, who is heading into a snap presidential election on June 24, has repeatedly called on banks to ease borrowing.

It was also helped on Wednesday after the central bank said it would take additional liquidity measures.

The bank said it raised its foreign exchange deposits auction volume to $1.5 billion from $1.25 billion saying the maximum outstanding deposit amount in auctions may reach up to $7.5 billion. [nI7N1S401G]

The main BIST 100 share index .XU100 was 1.4 percent higher at 100,780 points, having hit its lowest level in 11 months early in the session.

Additional reporting by Nevzat Devranoglu, Ece Toksabay, Ali Kucukgocmen, Orhan Coskun and Behiye Selin Taner; Writing by Daren Butler and David Dolan; Editing by Gareth Jones

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