Turkish Central Bank hikes interest rates

Lawrence Kim
May 24, 2018

Turkish President Recep Tayyip Erdogan said late Wednesday that Turkey could curb the currency fluctuations in the short term. The lira has lost more than 20 percent of its value against the dollar since the beginning of this year. "The Central Bank will continue to use all available instruments in pursuit of the price stability objective".

The currency is now trading at 4.8 per dollar, with pressure on the central bank to hike interest rates as the lira goes into free-fall.

The lira's weakness was also exacerbated by dollar gains against a basket of currencies, with investors awaiting minutes of the Federal Reserve's last policy meeting for hints on the pace of monetary tightening.

After the steps taken by the officials, the lira recovered to 4.55 against US dollar and 5.33 against euro after the day's record lows of 4.92 and 5.74, respectively.

The situation had not been helped by Erdogan himself who has consistently pressured the central bank to keep rates down to boost growth. "I am confident that the right measure will be taken at right time", Turkish Economy Minister Nihat Zeybekci told reporters.

"Emerging market currencies has taken a liking to this and USDZAR is trading back at R12.46 from R12.65 at the open this morning".

Turkey's central bank "cavalry" finally turned up late in the day on May 23, raising the regulator's late liquidity window rate by 300 basis points to 16.5% to support the punch-drunk Turkish lira (TRY). It raised interest rates.

Earlier Wednesday, Deputy Prime Minister Bekir Bozdag cast the lira's drop as a foreign plot to harm Erdogan and distort the results of the polls.

The next scheduled meeting of Turkey's central bank had not been due until June 7 but economists had said an emergency - and substantial - rate hike by the central bank is not only on the cards, but essential. The side effects of the war in neighboring Syria are also to blame for adversely impacting the Turkish economy.

Turkish inflation reached 10.85 per cent in April from the same month the year earlier and the economy has been plagued by fears of overheating despite impressive growth.

"The government is committed to maintaining fiscal discipline and accelerating structural reforms [including macroprudential measures] to reduce the current account deficit and help the Central Bank's disinflation efforts", he said.

Ahead of the elections, Ankara has announced a controversial package of incentives and a tax amnesty, increasing fears about overspending.

Other reports by Click Lancashire

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