Photo: Reuters/Umit Bektas

Turkish President Recep Tayyip Erdogan has made no secret of his distaste for high interest rates – he has gone so far as to call them the “mother and father of all evil.”

Despite this, amid a currency crisis that has spiraled out of control this year, Turkey’s central bank has maintained some degree of independence, raising rates several times to stabilize the currency. Investors fears that Erdogan’s recent re-election would change that grew on Tuesday.

In the bank’s first monetary-policy decision since Erdogan consolidated his political power in a snap election, policymakers held rates steady, defying the market expectation of a rate hike.

After the announcement, the lira, which has fallen by nearly 25% this year, dropped 3% versus the US dollar.

Chart: xe.com

“Recently released data indicate a more significant rebalancing trend in the economic activity,” a statement released on the central bank’s website said. “External demand maintains its strength, while signs of deceleration in domestic demand become more visible.”

The currency crisis complicates the outlook for Turkey’s economy, given the country’s US$300 billion in foreign corporate debt. As the lira falls, the cost of servicing the massive pile of foreign-currency-denominated debt rises.

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