Turkey Will Continue Cutting Interest Rates, Erdogan Says

(Bloomberg) --

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Turkish President Recep Tayyip Erdogan delivered his most explicit message on interest rates, announcing his government will continue rate cuts even as inflation soars.

“This government will not raise interest rates. We will continue cutting them,” Erdogan said, speaking in Ankara after a weekly cabinet meeting.

The lira extended losses to as much as 0.9% after his comments to near 16.6 per dollar. The currency depreciated 19.8% this year, the worst performance among emerging market currencies tracked by Bloomberg.

Turkey’s central bank has been keeping the benchmark rate at 14% since December, even as annual inflation accelerated to 73.5% as of May.

“With the policy rate 60% below inflation, I don’t think it makes much of a difference if it’s 14%, or 10%, or 5%,” said Nick Stadtmiller, director of emerging markets at Medley Global Advisors. “Erdogan’s comments reinforce the point that policymakers are not going to be deterred from their low-rates commitment.”

(Updates with analyst comment in final paragraph.)

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