(Bloomberg) -- The lira tumbled after President Recep Tayyip Erdogan said Turkey should cut interest rates just hours before the central bank is due to review policy.
Speculation has been growing that the monetary authority will deliver a sizable interest-rate increase Thursday after it signaled potential action last week to help stem accelerating inflation. The currency slid more than 3 percent against the dollar, set for the steepest decline in two weeks.
Erdogan Says Turkey ‘Should Cut This High Interest Rate'
While Erdogan said the central bank is independent and will take its own decision, his comments are spooking investors. They worry that the president's long-held distaste of higher borrowing costs will stand in the way of effective policy action needed to anchor the the nation's assets.
“At first glance, it doesn't bode well for this afternoon,” said Guillaume Tresca, a strategist at Credit Agricole SA in Paris. “We don't expect a massive rate hike.”
The lira was 3 percent lower at 6.5377 per dollar at 12:41 p.m. in Istanbul, after touching 6.5574.
Inflation accelerated to almost 18 percent in August, eroding the real yield on the currency and leaving it exposed to higher borrowing costs in the U.S and already-shaky investor appetite for emerging market assets.
The median estimate in a Bloomberg survey of economists is for a 325-basis-point increase to the one-week repo rate to 21 percent. The decision is due at 2 p.m. local time.
To contact the reporter on this story: Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net
To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Keith Jenkins, Alex Nicholson
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