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Turkey makes first rate hike in almost 3 years
By AFP - Nov 24,2016 - Last updated at Nov 24,2016
ISTANBUL — The Turkish central bank on Thursday announced it was hiking its main interest rate by 50 basis points, in a bid to counter a drastic fall in the value of the lira in recent months.
The monetary policy committee of the bank said the one-week repurchasing rate was being lifted to 8 per cent from 7.5 per cent, the first rate hike by the bank since January 2014.
The Turkish lira has lost over 10 per cent in value against the dollar over the last month amid doubts over Turkey's flagging growth prospects and fears the drive by President Recep Tayyip Erdogan for a presidential system will risk more instability.
The bank is nominally independent but its decision follows a number of high-level political meetings on the economy including talks at Erdogan's palace late on Wednesday.
The bank said exchange rate movements due to heightened global uncertainty and volatility pose "upside risks" to the inflation outlook.
"The committee decided to implement monetary tightening to contain adverse impact of these developments on expectations and the pricing behaviour," it said explaining the decision.
Inflation in October was 7.16 per cent, still well off the bank's target of 5 per cent.
The lira reversed earlier losses to immediately recover on the rate hike news, gaining 0.74 per cent in value against the dollar on the day.
In other rate moves, the overnight borrowing rate remained intact at 7.25 per cent but the overnight marginal funding rate was raised to 8.5 per cent from 8.25 per cent, the bank said on its website.
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A massive rate hike may have stalled the Turkish lira’s fall and salvaged the central bank’s credibility, but it stunts growth at a politically fraught time for Prime Minister Recep Tayyip Erdogan and may not shield Turkey from a fragile global backdrop for long.
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