Financial markets have grown increasingly concerned that Turkey is in danger of adding its name to the list of countries seeking a rescue loan from the International Monetary Fund.
Countering a trend popular within Turkey, especially within the retail sector, the government said any contracts previously made in foreign currency but which were now in effect must be converted into lira within 30 days.
The currency has lost 40 percent of its value against the dollar this year, hit by concerns about Erdogan's influence on monetary policy and more recently by a diplomatic spat between Turkey and the US.
Following the CBRT's announcement, the Turkish lira strengthened to 6.0151 against the USA dollar from a 6.45 level, gaining almost 5 percent.
"It nearly seems like it's a game of "good cop, bad cop" being played out between the Turkish authorities - with President Erdogan on the one hand still making statements regarding his dislike of interest rates and. a very sizeable reaction from the central bank in response to the recent inflationary and geopolitical developments", she said.
The sense of doom was compounded on August 1, when the U.S. imposed selective sanctions on Turkey over the detainment of an American pastor. Growth slowed to an annual rate of 5.2% in the second quarter, from the first quarter's 7.4%.More news: New York Democrats decide governor, attorney general races
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"Hemati told the media a meeting with the administrators of the Turkish and Russian Central Banks is expected in the near future and he hopes the agreed topics would rapidly come into effect", the Turkish agency said. He repeated however, his belief that interest rates should be cut, calling them an "instrument for exploitation".
Turkish President Tayyip Erdogan has appointed himself chairman of the country's sovereign wealth fund and completely changed its board, naming Finance Minister Berat Albayrak as his deputy, the country's Official Gazette said on Wednesday. "I'm saying let's cut these high interest rates".
On Thursday he ruled that property sales and rental agreements must be made in lira, putting an end to such deals in foreign currencies. But on Thursday, the Turkish Central Bank did just that.
"Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement".
"The Central Bank is independent, it takes its own decisions. If you say "inflation is the cause, the rate is the result", you do not know this business, friend", he added.
"Inflation expectations, pricing behavior, lagged impact of recent monetary policy decisions, contribution of fiscal policy to the rebalancing process, and other factors affecting inflation will be closely monitored and, if needed, further monetary tightening will be delivered", the statement said.