In a surprise move on Thursday morning, the Turkish central bank raised its benchmark rate by 625 basis points. The lira surged more than 8% against the U.S dollar, rising from 6.55 to 6.02 lira per dollar - a 2-week high - in under two hours.
The lira took on significant losses in July and August as investors began to have serious concerns over President Erdoğan’s influence on Turkey’s central bank regarding monetary policy, as well as the rising diplomatic tensions between the United States and Turkey.
But today’s strong reaction in the FX markets shows investor confidence in Turkey’s monetary authorities has been restored to some degree.
The central bank also hiked the one-week repo rate from 17.75% to 24%, citing “risks to price stability” and “slowdown in domestic demand.”
President Erdoğan has claimed high interest rates and excessive inflation are a direct result of bad policies by the central bank, however, the bank’s Press Release on Monetary Policy today reiterated its commitment to adjust interest rates as it sees fit:
“The Central Bank will continue to use all available instruments in pursuit of the price stability objective. Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement.,” said participating committee members.At press time, the USD/TRY currency pair is trading around 6.09 lira per dollar - a gain of 4.07% for the lira on the day.
Lira banknotes photo: 1
