Turkey’s lira eases on in­ter­est rate hike

The Gulf Today - Business - - REGION -

ANKARA: Turkey’s lira headed for its sec­ond best week since 2009 af­ter the cen­tral bank hiked in­ter­est rates de­ci­sively. In­vestors on Fri­day weighed the im­pact of hefty 625 ba­sis point rate hike and looked ahead to a new eco­nomic plan slated to be un­veiled next week.

The cen­tral bank on Thurs­day raised its bench­mark rate to 24 per cent in the big­gest such hike in Pres­i­dent Tayyip Er­do­gan’s 15-year rule, boost­ing the lira and pos­si­bly eas­ing in­vestor con­cerns about the bank’s in­de­pen­dence.

The lira has lost more than 40 per cent of its value this year on the back of in­vestor con­cerns about Er­do­gan’s in­flu­ence on mon­e­tary pol­icy and an on­go­ing row with the United States that has re­sulted in re­cip­ro­cal sanc­tions and trade re­stric­tions.

The lira was trad­ing around 6.100 against the dol­lar. The lira’s im­plied volatil­ity gauges also fell to their low­est lev­els in more than a month, as sen­ti­ment con­tin­ued to im­prove.

The bank’s de­ci­sion came hours af­ter Er­do­gan, a self-de­scribed ‘en­emy of in­ter­est rates’, re­it­er­ated his op­po­si­tion to high in­ter­est rates and blamed Turkey’s high in­fla­tion on the cen­tral bank’s wrong steps.

With Thurs­day’s rate hike, the bank has now raised in­ter­est rates by 11.25 per cen­t­age points since late April in an at­tempt to prop up the ail­ing lira. Key rates now stand at their high­est level since 2004, around a year af­ter Er­do­gan first came to power.

Late on Thurs­day, Fi­nance Min­is­ter Berat Al­bayrak told pro­gov­ern­ment news­pa­per Sabah that the cen­tral bank’s move had put an end to any dis­cus­sions about the bank’s in­de­pen­dence, and said Turkey would un­veil its medium-term eco­nomic pro­gramme on Sept.20.

Al­bayrak, who is also Er­do­gan’s son-in-law, said the three-year busi­ness plan would put forth “re­al­is­tic macro targets” with the “right ac­tion plans” to­wards the econ­omy’s prob­lems.

Er­do­gan and his govern­ment have cast the lira cri­sis as an ‘eco­nomic war’ against Turkey, re­peat­edly urg­ing Turks to sell their for­eign cur­rency sav­ings to shore up the lira.

In an at­tempt to sup­port the cur­rency, the cen­tral bank and govern­ment have taken a se­ries of mea­sures in re­cent weeks, with Er­do­gan rul­ing early on Thurs­day that prop­erty sales and rental agree­ments must be made in lira, putting an end to such deals in for­eign cur­rency.

On Thurs­day, Er­do­gan again said the volatil­ity in the cur­rency was “ar­ti­fi­cial” and vowed that his coun­try would emerge stronger from the pe­riod ahead if Turks stood tall against the at­tacks.

Reuters

Tourists count cur­rency at a for­eign ex­change out­let in Istanbul.

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