Turkey stuns market with massive interest rate hike

Turkey stuns market with massive interest rate hike

Turkey stuns market with massive interest rate hike

It later shed some of those gains but was still up 3.0 per cent in value at 6.14 to the dollar.

Against expectations, the central bank did not raise rates at its last meeting in July.

"Accordingly, the Committee has chose to implement a strong monetary tightening to support price stability", it added, explaining the hike.

Following the news, the Turkish lira rose 5 percent in value against the U.S. dollar, reversing its 42-percent fall this year against the American currency.

Turkey's central bank raised its interest rate to a much higher than expected 24% on Thursday, triggering a surge in the country's flagging currency.

The central bank said deterioration in pricing behavior continued to pose upside risks on the inflation outlook, despite weaker domestic demand conditions.

In a bid to shore up the Turkish lira, Erdoğan's government issued a decree on Thursday banning the use of foreign currency in the sale and renting of property and the leasing of vehicles.

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.


Earlier in the day, Erdogan had launched a blistering attack on the central bank, causing a sharp fall in the value of the lira just ahead of the crucial rate decision.

The bank´s intervention was the latest aggressive rate hike to calm economic turbulence in an emerging market after the Argentinian central bank´s recent hike from 45 to 60 percent on August 30.

Erdogan accused the central bank of failing to control inflation, now standing at 18 percent, and again aired his unorthodox view that low rates bring inflation down.

Currently, the interest rates are below the annual inflation level in Turkey. But it still expects to end its 2.6 trillion euro asset purchase scheme by the end of the year, suggesting that a formal decision on ending quantitative easing will come later. "If you say "inflation is cause, the rate is the result", you do not know this business, friend", he added.

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

He said Turkey also needed to resolve a dispute with the United States, which helped drive the lira to a record low of 7.24 against the dollar a month ago, and rebalance the economy away from big infrastructure projects and consumer spending.

"Great decision - made all the more hard by the huge pressure on the central bank from Erdogan", said Bluebay Asset Management LLC strategist Tim Ash.

The US hit two Turkish ministers with sanctions over the detention of US pastor Andrew Brunson and President Donald Trump doubled steel and aluminium tariffs on Turkey.

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