Turkey bans use of foreign currency in property market

Soc Gen exchange rate forecast for EURUSD

Addressing a meeting of Turkish tradespeople in Ankara on Thursday, before the rate decision was announced, Erdoğan said the central bank is independent and takes its own decisions.

The next two Monetary Policy Committee meetings are to be held in October.

Turkish President Recep Tayyip Erdogan on Wednesday took the wheel of his country's sovereign wealth fund, in his latest attempt to steady an economy in crisis, state media reported.

"Accordingly, the Committee has chose to implement a strong monetary tightening to support price stability", the monetary policy committee statement said.

Following the CBRT's announcement, the Turkish lira strengthened to 6.0151 against the USA dollar from a 6.45 level, gaining almost 5 percent.

The move comes as Turkey's currency has lost nearly a third of its value against the dollar since January.

The monetary policy committee said deterioration in pricing behaviour continued to pose upside risks on the inflation outlook, despite weaker domestic demand conditions.

All 11 economists in a Reuters poll forecast the bank would tighten, but with the rate hike predictions ranging between 225-725 basis points as the bank balances concerns over lira weakness with worries about an economic slowdown.

In a speech to a traders' confederation in the capital, Ankara, Mr Erdogan said on Thursday that nobody should carry out business in foreign currency apart from exporters and importers.

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Guillaume Tresca, senior emerging market strategist at Credit Agricole said the economy needed to slow down because it was overheating and that an interest rate rise was needed to cap lira depreciation.

Erdoğan has always been pressuring the bank to keep interest rates low to encourage economic growth. "If you say "inflation is the cause, the rate is the result", you do not know this business, friend", he added.

The Turkish lira began to recover shortly after the rate hike, strengthening by 3% to 6.16 against the dollar.

"Great decision - made all the more hard by the huge pressure on the central bank from Erdogan", said Bluebay Asset Management LLC strategist Tim Ash.

Phoenix Kalen, director of EM strategy at Societe Generale, said the market was both pleased and confused by the bank move.

Earlier in the day, Erdogan had launched a blistering attack on the central bank, causing a sharp fall in the value of the lira just ahead of the crucial rate decision.

Piotr Matys at Rabobank said Turkey also needed to resolve its trade dispute with the U.S. and rebalance the economy away from big infrastructure projects and consumer spending.

Erdogan has cast the lira crisis as an "economic war" targeting Turkey and has repeatedly urged Turks to sell their dollar savings to shore up the lira.

In another bid to prop up the lira, Erdogan earlier on Thursday ordered by decree that property agreements in foreign currencies would not be allowed.

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