Turkey’s central bank on Wednesday sharply increased one of its primary lending rates after a growing clamour from investors to halt the slide in the currency.
Following an emergency monetary policy committee meeting, the central bank announced that it would hike the late liquidity window lending rate from 13.5 per cent to 16.5 per cent. All other rates were kept the same.
Wednesday’s move, which followed a rise in April from 12.75 per cent, sent the lira rallying after a dramatic tumble earlier in the day. The currency was recently up 2.2 per cent, with one dollar buying TL4.5692. It had plummeted almost 5.1 per cent earlier to a record low of TL4.9221 to the greenback.
Speaking after the announcement, President Recep Tayyip Erdogan promised to “abide by the global governance principles on monetary policy.” He added: “But we will not let global governance principles finish off our country,”
Mr Erdogan, whose vociferous opposition to high interest rates has been seen as the primary barrier to swifter action from the central bank, did not directly address the rate rise. But in comments that appeared to be aimed at calming investors, he used the televised speech to former members of parliament in Ankara to say that Turkey would never abandon the principles of global markets.
Charles Robertson, chief economist at Renaissance Capital, said the 3 percentage point rate increase was the “bare minimum” in stabilising the currency. It “at least . . . shows policymakers are prepared to act decisively and that there is a limit to [central bank] tolerance of [lira] weakness,” added Chris Turner, head of strategy at ING.
The lira is still down 17.1 per cent since the end of 2017. Investors are concerned the economy is overheating, with inflation running at almost 11 per cent. Despite the rapid price growth, the Erdogan government has continued to add fiscal stimulus in its bid to fuel high levels of economic growth. The current account deficit has also widened markedly, something analysts have warned makes the country increasingly sensitive to external shocks.
In a statement that accompanied the emergency hike, the central bank said that it would continue to use “all available instruments” to pursue price stability and curb inflation. “Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement,” it said.
Mehmet Simsek, the deputy prime minister responsible for the economy, sought to bolster the central bank with a tweet.
