One day after slamming the central bank’s high rates and inability to handle inflation – just hours before the CBRT announced a jarring 625bps rate hike to 24% – Turkish President Recep Tayyip Erdogan was at it again, saying his “patience has a limit” over central bank policies, in response to Thursday’s rate hike (which as many have correctly pointed out, was certainly pre-cleared with the executive president, and thus Erdogan is merely insulating himself against the inevitable fallout which he can then blame on the central bank instead of his own bizarre economic policies).
Speaking in televised comments to members of the ruling party AKP, Erdogan again attacked the central bank, saying “the central bank responded to calls for interest rate hikes, which have been around for some time” with a rate hike that was “quite high.”
He also repeated the now familiar line saying that “foreign exchange rates are being used as a tool in the economic war being waged against Turkey”, however he countered that “a country cannot be maintained with the FX lever alone.”
But his most ominous warning was when he said that the central bank “can never meet its own inflation forecasts and keeps revising them throughout the year,” while adding that “we will see the results of central bank independence.”
According to various desks and numerous traders, Erdogan’s latest comments indicate that the days of central bank independence are now limited, and the central bank is being cast as a pre-emptive scapegoat for when the economy finally suffers a hard landing, which Erdogan will blame on the monetary policymakers, at which point he will assume unilateral control over the CBRT. Still, it was difficult to say where Erdogan’s vitriolic rhetoric ends and true intentions begin.
Erdogan’s threats came after Friday’s latest data which showed Turkey’s current account deficit narrowed again to $1.75 billion in July, in line with expectations, and better than both the $3 billion in June and $6 billion in May.
And while the Turkish Lira had maintained its bullish sentiment earlier in the session after yesterday’s rate hike, Erdogan’s comments sent a shockwave through the TRY, which tumbled from 6.02 to below 6.13 against the dollar, before recovering some losses and trading just below 6.08 last, still a major improvement from the 6.50 where it found itself this time yesterday before the gargantuan tightening which is sure to send the Turkish economy into a tailspin sooner or later.