The decision came after Turkey's central bank increased interest rates in efforts to stop the declining value of the lira. "Turkey is a country that has a net foreign debt of over $400 billion, and where 40 percent of [Turkish] deposits are in foreign currency, so the game could be over in a day".
The Central Bank of Turkey on Thursday hiked its one-week repo rate by 625 base points, raising its policy rate from 17.75 to 24%, state news agency Anadolu reported.
Meanwhile, Turkish Finance Minister Berat Albayrak said earlier this month in an interview that the Turkish Central Bank has independent government and will take all necessary measures to fight inflation. Erdogan warned on Friday that his patience with interest rates had limits.
The inflation rate in Turkey rose to almost 18 percent last month. The bank is due to publish its latest decision later Thursday and investors are hoping for an increase in rates.
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Istanbul-based economist Ozlem Derici Sengul said investors were anxious about the central bank not being able to take such action due to political pressure, so "the move built credibility".
But there had been fears over the health of the Turkish economy - which economists say is heading for a recession after a slowdown in the second quarter of 0.9 percent compared to 1.5 percent in the first quarter of this year.
But analysts say the move will not be enough to quickly erase worldwide investors' concerns, as the country has fundamental economic problems, such as a high level of debt owed in foreign currencies that has grown in size as the lira has fallen.
In a statement, TCMB's monetary policy committee said Turkey's economy was weakening while inflation was rising, hence the reason for its action. "If you think inflation is the cause and interest rates are the result, it means you don't know about this matter, my friend".
"If wished, extra monetary tightening will be delivered", the bank stated in an announcement.
Economists have argued the nominally independent bank has come under pressure from Erdogan who, only a couple of hours before its decision, launched a blistering attack on the bank and interest rates.
He also decreed that local property sales, rental contracts and leasing transactions could no longer be conducted in foreign currency, in a fresh bid to buttress the flagging lira.