Turkey raises interest rates to stem currency crisis

Angelo Anderson
May 24, 2018

The Turkish Lira has bounced from central bank intervention after a scorching run down the charts, and the USD/TRY is back into 4.5685.

The lira weakened to over 4.80 per dollar on Wednesday, down some 5 percent since the previous day.

"Current elevated levels of inflation and inflation expectations continue to pose risks on the pricing behaviour", the bank said in the statement.

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

"Turkey's economy grew 7.4 percent past year and is still maintaining a growth trend at this level".

President Recep Tayyip Erdogan will start his election campaign for the upcoming June early polls on Saturday with a rally in eastern Erzurum province.

"Interest rates are the mother and father of all evil", said Erdogan, mentioning also a "foreign conspiracy" to harm Turkey's economy ahead of elections.

Simsek added that the Turkish Central Bank governor and members of the monetary policy committee have his full backing in doing what is necessary to stem the slide of the lira and achieve price stability.

Currency volatility was not in line with the country's economic realities, he added.

With the bank and its chairman Murat Cetinkaya silent for the past week, he said the central bank needs also to act to "shore up its own credibility" with markets questioning whether it will "be able to take action".

The Istanbul bourse earlier said it was taking measures to convert its foreign exchange assets to lira to "fight speculative actions aimed at creating a negative image of Turkey", but it was unclear if this would have any impact on the currency.

Analysts at Commerzbank said in a note that Turkey was going through a "currency crisis".

The TRY's collapse this year is thought to have put many Turkish companies that borrowed in foreign currencies at risk of default and the potent wicked brew of domestic and global economic negatives that have taken the feet from under the lira-including double-digit inflation, a surging current account deficit, the fear that the CBRT's monetary independence has been lost and the growing attraction of US Treasury yields that is drawing capital away from emerging markets-may well require a bigger rate "cure" than 300bp.

The central bank's rate-setting committee hadn't been scheduled to meet until June 7, and it hadn't communicated with markets for a week before Wednesday's move.

Other reports by Iphone Fresh

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