ISTANBUL: Turkey’s central bank raised its benchmark interest rate by 2 percentage points to 10.25 per cent on Thursday to bolster the lira, which has depreciated to record lows.
The currency has declined by more than 20 per cent this year, and this week alone hit all-time lows of more than 7.6 against the dollar and 9 against the euro.
The lira was rallying after the announcement by the bank’s Monetary Policy Committee, which has kept the rate at 8.25 per cent at its last three consecutive meetings. The bank announced that it was raising the one-week repo rate from 8.25 per cent to 10.25 per cent.
It said that “inflation followed a higher-than-envisaged path,” adding that “tightening steps taken since August should be reinforced in order to contain inflation expectations and risks to the inflation outlook.” The move was unexpected as the bank is under political pressure -most notably from President Recep Tayyip Erdogan — not to hike interest rates.
Erdogan favours rate cuts as opposed to market pressure for a hike that would curb inflation. His unorthodox view that lower interest rates mean lower inflation is the opposite of conventional economic theory.
“The rates decision is huge — just wonder if they had to go to presidential palace to get sign off,” said Timothy Ash, strategist at BlueBay Asset Management in London. The bank’s move “helps restore some of their battered credibility,” Ash tweeted.
“I wonder if the risks from US elections and a Biden win, plus the situation in the Eastern Med weighed on their decision.” — dpa
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