The lira fell as much as 1.6% against the US dollar after Erdogan, a self-proclaimed enemy of interest rates, suggested to members of the ruling party in Ankara he was losing patience with the Central Bank of the Republic of Turkey.
"It's currently my phase of patience but there is a limit to this patience," Erdogan said of the rate hike, according to Bloomberg, before restating the unorthodox claim that interest rate hikes won't help stem inflation. He also warned Turkey would see the "results of the independence" of the regulator.
The lira had climbed Thursday after the CBRT raised its key rate by 625 basis points to 24% in a move that underscored CBRT's intent to remain independent of Erdogan. The president has increasingly tried to wield influence over monetary policy since his reelection this year.
Still, strategists warn the rate hike could backfire. Thierry Wizman of Macquarie Research wrote in a note that the renewed criticism of the CBRT could embolden government officials to pursue more executive power over the central bank, especially if the lira fails to stabilize.
"If it is not effective, Erdogan’s influence and political capital as it pertains to monetary policy will rise," Wizman said. "These are the potential 'non-linearities' that confront Turkey when the policy backdrop is so politically charged, which is itself a huge source of risk."
The lira has been one of the worst-performing currencies this year, shedding more than 60% of its value against the dollar since January.
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