Turkey’s lira eases on interest rate hike
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.
Tourists count currency at a foreign exchange outlet in Istanbul.