Divisions among Turkey's economic policy makers, which have hindered the central bank and unnerved investors, are unlikely to abate before an April referendum on granting the stronger powers that President Tayyip Erdogan has long sought. The lira has been one of the world's worst-performing currencies this year, falling more than seven percent against the dollar, on top of double-digit losses in both of the last two years. Inflation is rapidly heading towards double figures.
Yet Erdogan's aides and some government officials, eager to maintain the Turkish leader's reputation for delivering strong growth, insist the country can ill-afford rate increases with the economy slowing at its sharpest pace in almost a decade.
Other senior officials disagree and believe politicians should be less vocal about monetary policy, even if this means higher rates to steady the crumbling lira decisively and restrain inflation. But in Ankara's corridors of power, theirs are the voices less heard.
"Truth be told, the dominant view in Ankara is clear: Erdogan needs to be convinced for interest rates to be hiked," said one senior economy official, speaking on condition of anonymity because the issue is so politically sensitive.
"The central bank's position is truly very difficult because it cannot satisfy anyone with its decisions. It is under constant criticism."
The bank has managed, for now, to put a brake on the lira's decline. At its last meeting on Jan. 24, it significantly hiked funding costs while leaving its main interest rate at 8 percent, instead lifting overnight and last resort borrowing rates.
The lira has since pulled back from its record low of 3.9417 to the dollar on Jan. 11, and was at 3.7505 in mid-session trading on Friday.
But the convoluted methods of the central bank (CBRT) have done little to reassure investors worried about its independence, or to contain inflation, which rose to 9.22 percent year-on-year in January, according to data released on Friday.
"Big rise in inflation in January. CBRT has to take responsibility. Policy has been too loose for too long, and lira weakness taking toll," Timothy Ash of BlueBay Asset Management, a veteran Turkey watcher, said on Twitter.
Erdogan has said the bank has a free hand and has all the tools it needs to stem the lira's falls. Senior officials around him have repeatedly said it is independent, and that politicians are merely stating their opinions.
But his insistence that interest rates cause inflation and that those urging rate hikes are part of a conspiracy against Turkey have set him at odds with members of his own team.