Turkish President Erdogan warns South Africa of FETO threat

Frederick Owens
July 26, 2018

Turkey's central bank meets today for its monthly monetary policy review-the first since the re-election of President Recep Tayyip Erdogan.

Earlier, Turkish President Recep Tayyip Erdogan said that the issue of refusal on a paid basis to pass military service will be put on the agenda after the election.

After the announcement, the lira, which has fallen by almost 25% this year, dropped 3% versus the U.S. dollar.

Jason Tuvey, senior emerging markets economist at Capital Economics in London, said the decision to leave rates on hold provides the first evidence that Erdogan is intent on holding "increasing sway" over the central bank, which is a negative for investors. The lira has lost more than a fifth of its value against the dollar since the start of the year.

Turkey's central bank left its policy rate unchanged on Tuesday, bucking expectations of an increase after inflation spiked to a 14-year high in June, a move that is likely to further unsettle investors about the direction of monetary policy. Opponents say the government's new anti-terrorism bill, now being debated in parliament, will give Erdogan with sweeping security powers. Without directly disputing that stance, Albayrak used his first interview in his more prominent role to voice generally mainstream policies, including that the central bank's policies should be in line with economic realities and market requirements.

Turkish President Erdogan warns South Africa of FETO threat

"Recently released data indicate a more significant rebalancing trend in the economic activity", the bank's statement said.

"Well, this is obviously a disappointing decision that shows the CBRT's priority doesn't seem to be inflation targeting anymore", said Delphine Arrighi, a portfolio manager at Old Mutual Global Investors.

The currency weakened as much as 4.2 percent to approach a record low and the yield on the nation's 10-year bonds jumped 132 basis points to a one-week high.

Following his inauguration, Erdogan appointed his son-in-law Berat Albayrak as the head of treasury and finance, raising further concerns over the independence of monetary and fiscal policy. But economist Timothy Ash of BlueBay Asset Management said the bank's decision Tuesday undid efforts to "rebuild the confidence of the market". As the lira falls, the cost of servicing the massive pile of foreign-currency-denominated debt rises.

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