Turkey to use lira in property purchases, sales, rents

Turkey to use lira in property purchases, sales, rents

After rising as high as 6.1442 to the dollar, the lira eased to 6.1025 on Friday.

The lira has traded in a narrow range since Monday after the central bank last week signaled potential action to stem consumer-price growth that has accelerated to the fastest in 15 years. S. for what he called a "heinous economic attack" that has sent the lira tumbling some 40 per cent this year.

But hours later, the Turkish Central Bank ignored Erdogan, raising interest rates to fight price increases and the risk of runaway inflation.

He earlier charged the bank with failing to control inflation and again aired his unorthodox view that low rates bring inflation down.

The bank's Monetary Policy Committee said in a statement it was implementing "a strong monetary tightening to support price stability".

President Recep Tayyip Erdogan signed a decree early Thursday that requires using the lira for buying, selling and renting of real estate and leasing of vehicles, according to presidential sources.

"It was a big surprise to us, but probably to every Turkey-watcher", said Nora Neuteboom, an economist at ABN Amro, saying the move was a "positive signal" with the bank wanting to show its independence and commitment to fight inflation.

The lira firmed to 6.01 against the dollar following the decision, from more than 6.4176 beforehand.

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The announcement in the government's official gazette stated that current agreements in foreign currencies must be changed to lira in 30 days, putting an end to deals in dollars and euros.

There had been indications from the bank that it would raise rates after inflation came in at almost 18 per cent in August, according to official data last week.

A "tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement", it added.

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.

Inflation in Turkey is now nearly 20 percent and the crisis there has spread to some other emerging market countries with sizable current account deficits. "If you say "inflation is cause, the rate is the result", you do not know this business, friend", he added. They increased the cost of cash to commercial lenders by around 150 basis points last month by forcing them to use a borrowing tool costlier than the one-week repo rate.

"The bold decision (by Turkey's central bank) reduces the risk that a full-scale financial crisis may unfold", wrote analysts at Rabobank in a note to clients.

Washington has imposed sanctions on two Turkish ministers and doubled tariffs on steel and aluminum imported from the country.

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