Turkey central bank stuns markets with giant rate hike

DXY Index Sideways Grind Continues ahead of BOE ECB Tomorrow

The rate rise comes on the same day as the Bank of England left the interest rate untouched at 0.75%, citing heightened risks to global growth as a result of volatility within emerging markets, as well as tensions between the United States and China. It later shed some of those gains but was still up 3.0 per cent in value at 6.14 to the dollar.

On Thursday he ruled that property sales and rental agreements must be made in lira, putting an end to such deals in foreign currencies.

The bank's Monetary Policy Committee raised the one-week repo rate to 24 per cent, 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 currency.

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

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

Thursday's decree and Erdogan's remarks come after the lira's drastic fall in value against the U.S. dollar last month, during one of the worst diplomatic rows between North Atlantic Treaty Organisation allies Washington and Ankara.

It vowed the tight stance in monetary policy would be "maintained decisively until inflation outlook displays a significant improvement".

TRT World's Turkey analyst Yusuf Erim has more. Late last month, South America's second-largest economy saw that rate jump to a staggering 60 percent in a bid to ease investor fears. "If you say ´inflation is the cause, the rate is the result´, you do not know this business, friend", he added.

The embattled currency has fallen by 40% this year amid a lack of interest rate hikes to control inflation.

The bank is also fighting a losing battle against inflation with annual consumer price inflation hitting 17.9 percent last month, its highest level since late 2003.

Anthony Skinner, director of Middle East and North Africa at Verisk Maplecroft, told AFP he believed the hike had already been agreed.

The bank implemented what economists described as a hidden interest rate hike in mid-August, forcing banks to borrow at the higher 19.25 per cent through the overnight lending facility. "Erdogan´s speech. was meant to put distance between himself and the (bank´s) decision".

The bank later said on Twitter that funding would be provided via the policy rate, the one week repo auction rate, instead of through overnight lending from September 14.

The bank's decision was announced hours after Erdogan triggered tumult by repeating his hostility to higher borrowing costs and issuing an order that limited the use of foreign currency in domestic transactions.

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.

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