Turkish central bank says it will act to contain inflation

Turkey's central bank said Monday it would adjust its monetary policy this month, raising hopes it will finally increase interest rates, as independent experts say it should do to keep the currency from falling and fueling a financial crisis.

The comments from the central bank underscore the volatile outlook for prices amid a currency crisis. The lira has lost 40 percent of its value against the dollar this year, driving up the cost of goods from potatoes to petrol and sparking alarm about the impact on the wider economy and the banking system.

Inflation jumped 17.9 percent year-on-year in August, official data showed, outstripping market expectations and marking its highest level since late 2003.

"Recent developments regarding the inflation outlook indicate significant risks to price stability. The central bank will take the necessary actions to support price stability," the bank said in a statement.

"(The) monetary stance will be adjusted at the September monetary policy committee meeting in view of the latest developments."

Higher rates can hinder economic growth, but are also needed to control inflation and support the currency, economic experts say.

The Turkish lira has plunged some 40 percent against the dollar so far this year over a spat with the United States over the detention of an American pastor on espionage and terror-related charges. Washington imposed sanctions and threatened new ones unless the pastor is release.

The currency was 1.2 percent lower on Monday, trading at 6.61 lira per dollar.

The currency drop is particularly painful for Turkey because it has accumulated a high debt in foreign currencies.

President Erdoğan has blamed Turkey's woes on foreign powers, particularly the United States, which he says is waging an "economic war."
Finance Minister Berat Albayrak told Reuters in an interview on Sunday that the bank was independent of the government and would take all necessary steps to combat inflation. He also promised a "full-fledged fight" against inflation.