ANKARA (Reuters) - Turkey’s central bank will not hesitate to take any necessary policy steps, the prime minister said on Tuesday, a day after President Tayyip Erdogan met with top economy officials to discuss volatility in the lira currency.
Erdogan, a vocal opponent of higher interest rates, met with economy officials including the central bank governor late on Monday, to discuss developments including the lira, government sources have told Reuters.
The lira has fallen as much as 10 percent so far this year, adding to a double-digit slide last year. Investors have cited fears about growing authoritarianism following a failed coup in July and concern that Erdogan’s resistance to higher rates has prevented the central bank from more aggressive tightening.
The government has been keen to dispel any suggestion the central bank is less than independent.
“We evaluated measures at yesterday’s meeting, and we discussed what needs to be done,” Prime Minister Binali Yildirim told reporters.
When asked about central bank measures, he said: “As the central bank is independent, it would be wrong for me to announce. I can say that the central bank will not hesitate to take any necessary measure in the face of any circumstances it faces.”
Two senior economy officials have said that inflation could reach double digits in the first quarter, for the first time in almost five years, due to the sell-off in the lira.
The central bank has effectively shut off two of its lira funding taps for the past two days, bankers have said, in an attempt to push lenders to borrow at a higher rate and defend the currency without an outright rate hike.
Erdogan, who espouses economic populist policies, favors cheap credit to spur lending and bolster the economy and wants borrowing costs to be low. However, he said last Thursday that the bank had the ability to take “all necessary steps” to defend the lira.
The lira TRYTOM=D3 was at 3.7836 against the dollar at 0917 GMT. It hit a record low of 3.9417 earlier this month.
Reporting by Ece Toksabay; Writing by David Dolan; Editing by Daren Butler