Published: Fri, September 14, 2018
Business | By Tara Barton

Turkey central bank raises benchmark rate to 24%; lira rallies

Turkey central bank raises benchmark rate to 24%; lira rallies

The Turkish lira gained ground against the USA dollar on September 12 ahead of the monetary policy committee meeting of the Turkish Central Bank.

"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.

There had been indications from the bank that it would raise rates after inflation came in at almost 18 per cent in August, according to official data last week.

Phoenix Kalen at Societe Generale said the market was both pleased and confused by the bank's move.

The increase, which was higher than expected, boosted the lira by five percent against the dollar and may ease investor concern about Erdogan's influence on monetary policy.

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

Several cruise ships reroute away from hurricanes Florence, Isaac
Photo Credit: Carnival cruise ships like the one picture here are being directed away from the path of Hurricane Florence . Norwegian Cruise Line's Norwegian Escape was diverted to the Bahamas instead of Bermuda, reported USA Today.

The Turkish lira began to recover shortly after the rate hike, strengthening by 3% to 6.16 against the dollar.

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.

Ignoring calls for restraint from President Recep Tayyip Erdoğan, the bank raised its main short-term rate from 17.5% following weeks of pressure from worldwide investors. And on the morning of the rate hike decision, Erdogan was busy.

Currently, the interest rates are below the annual inflation level in Turkey. Erdoğan has always been pressuring the bank to keep interest rates low to encourage economic growth. "If you say 'inflation is cause, the rate is the result, ' you do not know this business, friend". 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.

Addressing a meeting of Turkish tradespeople in Ankara on Thursday, before the rate decision was announced, Erdoğan said the central bank is independent and takes its own decisions.

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.

Like this: