February 12, 2020 / 10:30 AM / 16 days ago

UPDATE 1-Turkey's Erdogan says interest rates will continue falling

(Adds quotes, details, lira, background)

ANKARA, Feb 12 (Reuters) - President Tayyip Erdogan said on Wednesday that the trend of falling interest rates in Turkey will continue after the central bank more than halved its policy rate since July last year.

In a speech to lawmakers from his AK Party in parliament, Erdogan said that hopefully annual inflation this year would be below the government’s year-end target of 8.5%, after it edged above 12% last month.

“Despite interest rates falling, the exchange rate has not exploded, inflation has not jumped and markets have not been stirred up,” Erdogan said.

Turkey’s lira has weakened in recent days to its lowest levels against the dollar since May, partly due to investor concern about the escalation of violence in Syria’s Idlib, to which Turkey has sent military reinforcements.

At 1012 GMT, the currency stood at 6.0335 to the dollar, weakening from a close of 6.0170 on Tuesday.

Erdogan said economic indicators painted a positive overall picture, contrary to warnings from some analysts that rate cuts could harm the Turkish lira and inflation.

“This is the nicest answer to the mentality that has always said, ‘You will sink if you lower interest rates’,” he added.

Erdogan has called interest rates the “mother of all evil” and says he believes high rates stoke inflation, counter to monetary theory. He has previously said rates will fall to single digits in 2020, stoking concerns about political interference in monetary policy.

The central bank last cut its policy rate by 75 basis points to 11.25% on Jan. 16. That marked its most restrained move since it began easing in July, suggesting any further stimulus would be modest as the economy leaves a recession behind. (Reporting by Ece Toksabay and Tuvan Gumrukcu; Writing by Daren Butler; Editing by Dominic Evans and Jonathan Spicer)

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