Turkey’s lira gained against the dollar prior to a decision by the central bank on whether to increase its benchmark interest rate for the third-straight month.
The lira was trading up 0.3 percent at 7.39 per dollar in early afternoon trading.
The central bank’s monetary policymakers are considering whether to increase interest rates from 17 percent – they stood at 8.25 percent four months ago – to ensure inflation slows and to defend the lira. Last week, President Recep Tayyip Erdoğan, who has sacked two central bank governors in two years, called for lower rates, citing rising borrowing costs for businesses.
Turkish central bank governor Naci Ağbal, appointed by Erdoğan in early November after the lira slid to a record low of 8.58 per dollar, has vowed to keep borrowing costs high this year to slow annual inflation from 14.6 percent towards the bank’s medium-term target of 5 percent.
Foreign investors are calling for tighter monetary policy to help Turkey support the fragile lira and rein in price increases. But Turkish businesses, including the owners of construction companies who are close to the president, are already feeling the pinch from higher interest rates.
Weighted average interest rates on commercial loans have surged to 20.9 percent annually from 15.9 percent a week prior to Agbal’s appointment and 9.3 percent in July, according to central bank figures. The cost of a housing loan has more than doubled to 18.6 percent from 9.1 percent six months ago.
Last week, Turkey’s biggest business group slammed the country’s banks for charging excessively high interest rates on loans. The costs “amount to one of the greatest obstacles to production and investment”, said Rifat Hisarcıklıoğlu, the head of the Union of Chambers and Commodity Exchanges of Turkey (TOBB).
The central bank is expected to keep its benchmark rate on hold, according to 28 of 34 economists surveyed by the state-run Anadolu news agency.
Turkish construction firms are facing higher costs and fewer buyers after rates on mortgages jumped and due to a COVID-19 population lockdown.
An increase in financing and building costs, as well as fluctuating demand, is hitting plans for new projects, said Ismail Kazanç, CFO of Turkish real estate firm Torunlar REIC, according to Reuters.
