ANKARA: The Turkish lira fell on Tuesday in anticipation of further interest rate cuts after Prime Minister Tayyip Erdogan said the central bank's action last week on rates was not enough and called for more "serious" decisions from the bank.
The central bank cut interest rates for the first time in a year last Thursday, despite stubborn inflation, after calls for a rate cut from the prime minister. It lowered its one-week repo rate, the main rate at which it currently funds the market, by 50 basis points to 9.5 percent.
Erdogan said more was needed. "A half percentage point (cut) is like mocking the nation. Instead, the decisions need to be serious," Erdogan told his weekly AK Party group meeting in parliament.
Turkey's lira weakened to 2.1060 against the dollar after Erdogan's comments from 2.0977 beforehand.
Erdogan had been calling for an emergency rate cut for weeks as he strives to maintain economic growth ahead of his expected bid for the presidency in August.
He has frequently criticised the central bank since it hiked interest rates dramatically in January to stem the lira's losses.
He has railed against an "interest rate lobby" of speculators he accuses of conspiring to drive up rates at the expense of Turkey's economic health.
Central Bank Governor Erdem Basci appeared to have been resisting the pressure, saying politicians had a right to their views but insisting that the central bank had a free hand.
Basci said last month he saw room for a gradual lowering in rates but ruled out a deep cycle of easing. Policy would stay tight until there was a clear improvement in the inflation outlook, he said.
"He will obey, listen to the prime minister and cut interest rates, which would strengthen the 'sultan' image of Erdogan in the eyes of the Turkish public," an Istanbul-based banker said. "Erdogan will continue to beat them until the bank cuts interest rates further."
Turkey's inflation rose to a higher-than-expected 9.38 percent year-on-year in April. The central bank expects inflation to begin falling in June but still sees it at an above-target 7.6 percent at year end.
The central bank had raised its overnight lending rate to 12 percent from 7.75 percent, its one-week repo rate to 10 percent from 4.5 percent and its overnight borrowing rate to 8 percent from 3.5 after the lira had fallen to record lows in January.
"If you lend with high interest rates, local capital could not invest. After the central bank's rate hike inflation peaked, yet we need to develop fast and continue with investments," Erdogan said at the AK Party meeting.
He said the government would do what was necessary when the current central bank administration's tenure is over. Governor Basci's tenure will end in 2016.
Erdogan's comments also weighed on the bond market.
Turkey's 2-year benchmark bond yield rose to 8.70 percent from 8.68 percent at Monday's close. The 10-year benchmark bond yield rose to 9.20 percent from 9.18 percent on Monday.
The country's Treasury sold a March 20, 2024 fixed-coupon bond at a yield of 9.16 percent in a tap, below a forecast of 9.22 percent. It also sold a May 19, 2021 floating rate note (FRN) at 99.518 lira, lower than a forecast of 98.75 lira.
The main Istanbul share index fell 0.34 percent to 78,333.18 points, slightly outperforming the broader emerging markets index, which was down 0.51 percent.
Shares in Tesco Kipa, the Turkish arm of British retailer Tesco Plc, dropped 9.5 percent after the parent company said talks on partnership options for Kipa in Turkey had ended without a deal.
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