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Erdogan, Invoking Trump, Says Turkish Rates Must Fall

Erdogan, Invoking Trump, Says Turkish Rates Must Fall

(Bloomberg) -- Turkish President Recep Tayyip Erdogan said the central bank needs to reverse current policy and borrowing costs must come down. The lira pared gains.

While the Federal Reserve is moving closer to lowering interest rates, “the policy rate in my country is 24%, this is unacceptable,” Erdogan said in Istanbul at a meeting with foreign journalists on Thursday. “That is why we will come up with a definitive solution in short time because Turkey needs to reverse its current interest rates policy very cautiously.”

Erdogan also voiced his unorthodox theory that consumer inflation will slow, rather than accelerate, if Turkey lowers interest rates. A headline figure hovering more than three times the official target of 5%, and a currency under pressure generally don’t support a rate cut.

The lira has depreciated about 8% this year against the dollar, the second-worst performer in emerging markets. It fell as much as 1.6% after Erdogan’s remarks.

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In calling for lower borrowing costs, the Turkish leader said he’s on the same page with U.S. President Donald Trump. “Trump criticized the Fed and said it’s damaging the economy. I’m saying something similar,” he said. High borrowing costs are “damaging us, but people in my closest circle don’t agree with this idea of mine. I believe we will resolve this issue through debate.”

Erdogan put forth that same unconventional view shortly before municipal elections in March. A repeat of the Istanbul municipal vote, ordered by election officials after Erdogan and his party insisted the balloting was tainted, is scheduled for Sunday.

Asked whether Turkey’s working on a plan to change its currency regime, Erdogan said the country will continue its path with the floating exchange rate. Earlier this week, his key ally said the country needs to work on a “new and fair” approach to managing the exchange regime.

Despite a crash in the lira last summer and months of market turmoil that followed, Turkey has stood by its free-floating currency and given repeated assurances that capital controls aren’t an option. Still, authorities have started to take a more interventionist approach, seeking to stabilize the lira by reintroducing a tax on foreign-currency sellers and imposing a settlement delay for some purchases by individuals.

--With assistance from Cagan Koc.

To contact the reporter on this story: Firat Kozok in Ankara at fkozok@bloomberg.net

To contact the editors responsible for this story: Onur Ant at oant@bloomberg.net, Amy Teibel, Paul Abelsky

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