Inaction on interest rates in an overheated economy – inflation in Turkey has risen to a 15-year high of 18 percent this month – and Erdogan's apparent stubbornness that has put pressure on the bank to cut interest rates in favor of growth investors have angered for months. Market expectations for a rate hike at the end of July, the central bank defies its key interest rate at 17.75 percent. Inflation was 15.4 percent at that time, more than three times the Bank's target of 5 percent.
A series of central bank meetings in recent months and a cabinet reshuffle appointing Erdogan's son-in-law Berat Albayrak as Finance Minister had not reassured investors, as any expected rate hike would not meet the lira or fall significantly.
The lira trended to a dramatic record low of $ 7.24 against the dollar on Aug. 13 after Trump charged higher tariffs for the country in response to continued detention of US pastor Andrew Brunson, for which he accused him of involvement in Turkey's 2016 coup attempt demanded. In August of last year, a dollar bought 3.5 lira; Over the last month, it has reached more than 6.
The Turkish president dropped the currency by 3 percent just two hours before the bank's decision, loudly criticizing the markets by criticizing the central bank for missing inflation targets, and reiterated its theory that rate hikes caused price increases. Conventional economic theory maintains the opposite of using elevated interest rates to curb inflation. Erdogan insisted that the bank be independent and make its own decisions.