Turkey boosts lira as central bank surprises markets with big rate hike

Marco Green
September 13, 2018

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.

The bank raised the one-week repo rate to 24 percent, meaning it has now increased interest rates by 11.25 percentage points since late April, in an attempt to put a floor under the tumbling lira.

"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.

The Turkish lira has lost more than 75% of its value against the dollar since January, pushing up the cost of a wide variety of goods.

"Accordingly, the Committee has made a decision to implement a strong monetary tightening to support price stability", it said.

"The central bank is independent and makes its own decisions", he said.

It said the policy would be "maintained decisively until inflation outlook displays a significant improvement".

Erdogan took over as Turkey's first executive president in July with sweeping new powers, including oversight over economic policy and the ability to appoint the central bank governor.

The bank must balance concerns over slipping growth, which, although a robust 5.2 percent in the second quarter on an annual comparison, showed signs of weakness with some analysts predicting Turkey is heading for recession.

But Neuteboom of ABN Amro said much more was needed for Turkey to turn around "the negative spiral" the economy is in.

Turkey's central bank, which described the hike as a "strong monetary tightening to support price stability", had left interest rates untouched since early June, causing markets to question just how independent bank policy was from the country's president.

The embattled currency has fallen by 40% this year amid a lack of interest rate hikes to control inflation. "If you say ´inflation is the cause, the rate is the result´, you do not know this business, friend", he added. "Erdogan´s speech. was meant to put distance between himself and the (bank´s) decision". They increased the cost of cash to commercial lenders by around 150 basis points last month by forcing them to use a borrowing tool costlier than the one-week repo rate.

Analysts say the lira's plunge last month had been sparked by a combination of concerns over domestic policymaking and a crisis in relations with the United States (US).

President Recep Tayyip Erdogan on Wednesday appointed himself the chairman of Turkey's sovereign wealth fund and named his son-in-law and Finance Minister Berat Albayrak as deputy chairman.

A growing crisis became acute earlier this year following the detention of an American pastor on espionage and terror-related charges, which prompted Donal Trump to double the import tariffs on Turkish steel and aluminium.

Other reports by Click Lancashire

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