Turkish lira rallies after emergency rate hike

  • Turkish lira rallies after emergency rate hike

Turkish lira rallies after emergency rate hike

The lira has lost more than 20 percent of its value against the dollar since the beginning of this year.

On Wednesday, the lira for the first time ever tested the 5.0 ceiling by hitting 4.92 lira to the dollar before later dropping to 4.86, losing over 4.0 percent of its value.

"Accordingly, the committee made a decision to implement a strong monetary tightening to support price stability", it added, according to BBC.

Turkish inflation reached 10.85 per cent in April from the same month the year earlier and the economy has been plagued by fears of overheating despite impressive growth.

The central bank's statement ended days of suspense on the markets over whether it would implement a rate hike after President Recep Tayyip Erdogan pressed for lower rates to boost growth.

Rebutting government rhetoric that the money market and economy were in trouble due to conspiratorial foreign intervention, she said: "If we are under a financial and economic attack as the government claims, the biggest mistake to make is to remain indifferent to this attack". He expressed support for the central bank "in doing what's necessary to stem the slide in lira & achieve price stability". A tight stance in monetary policy would be maintained decisively until the inflation outlook displayed a significant improvement, it also noted, while adding that any new data or information may prompt its monetary policy committee to revise its stance.

Jason Tuvey, an economist with Capital Economics in London, says that if the central bank "continues to bow to pressure from Erdogan and refrains from raising interest rates, that would lead to an even sharper fall in the currency". The Turkish Lira, hampered by a country riddled with political strife and failed coup attempts, is rapidly approaching the 5.0000 level against the US Dollar, after starting out nearly on par with the Greenback at 1.1493 in April of 2008.

Erdogan also hurt the lira last week by saying he would grant greater powers for presidents over monetary policy.

Earlier Wednesday, Deputy Prime Minister Bekir Bozdag cast the lira's drop as a foreign plot to harm Erdogan and distort the results of the polls. He warned that "there is no limit to how far this could go because this is becoming a currency crisis".

Mr Erdogan has said he plans to take more control of the country's finances after the election on 24 June.

"The central bank has hiked interest rates several times over the past few years to shore up the currency. But the relief has often proved short-lived", he said.