Karachi
\nTurkey\u2019s central bank on Thursday surprised markets with a bigger than expected rate hike to battle soaring inflation and boost the lira, prompting the embattled currency to surge in value.
\nTurkey has in recent weeks been battling through one of the most troubled periods for its economy under the rule of President Recep Tayyip Erdogan, with the lira battered on currency markets in August.
\nThe Turkish central bank on Thursday hiked the one week repo auction rate 625 basis points from 17.75 per cent to 24 per cent, significantly higher than the Bloomberg consensus of 21 per cent.
\nThe lira reacted strongly to the decision, rising by five per cent in value to 6.0 lira to the US dollar. It later shed some of those gains but was still up over 2.7 per cent in value at 6.15 to the dollar.
\nThe magnitude of the hike was all the more surprising given that just before the decision President Recep Tayyip Erdogan had slammed interest rates as a \u201ctool of exploitation\u201d.
\nThe bank had not touched interest rates since early June with markets concerned that the policy of the nominally independent bank is being dictated by Erdogan.
\nThere had been indications from the bank that it would raise rates after inflation came in at nearly 18 per cent in August, according to official data last week.
\nThe bank said on Thursday that inflation developments pointed \u201cto significant risks to price stability\u201d due to the recent fall in the value of the lira.
\nThe bank vowed the tight stance in monetary policy would be \u201cmaintained decisively until inflation outlook displays a significant improvement\u201d in the statement.
\nIt described the hike as a \u201cstrong monetary tightening to support price stability\u201d.
\nThe bank must balance concerns over slipping growth, which, although a robust 5.2 per cent in the second quarter on an annual comparison, showed signs of weakness with some analysts predicting Turkey is heading for recession.
\n\u201cDeterioration in the pricing behaviour continues to pose upside risks on the inflation outlook, despite weaker domestic demand conditions,\u201d the bank added.
\nEconomists have argued the nominally independent bank has come under pressure from Erdogan who, only a couple of hours before its decision, launched a blistering attack on the bank and described interest rates as a \u201ctool of exploitation\u201d.
\nHe earlier charged the bank with failing to control inflation and again aired his unorthodox view that low rates bring inflation down.
\n\u201cInterest rates are the cause, inflation is the result. If you say \u2018inflation is the cause, the rate is the result\u2019, you do not know this business, friend,\u201d he added.
\nThe bank implemented what economists described as a hidden interest rate hike in mid-August, forcing banks to borrow at the higher 19.25 per cent through the overnight lending facility.
\nThe bank later said on Twitter that funding would be provided via the policy rate, the one week repo auction rate, instead of through overnight lending from September 14.
\nAnalysts say the lira\u2019s plunge last month had been sparked by a combination of concerns over domestic policymaking and a crisis in relations with the United States (US).
\nAs well as being seen to undermine the independence of the central bank, Erdogan in July stunned markets by appointing his son-in-law Berat Albayrak as finance minister.
\nRelations with the US deteriorated last month after Washington imposed sanctions on two Turkish ministers over the detention of an American pastor and President Donald Trump doubled steel and aluminium tariffs on Turkey.<\/p>\n","protected":false},"excerpt":{"rendered":"
Karachi Turkey\u2019s central bank on Thursday surprised markets with a bigger than expected rate hike to battle soaring inflation and boost the lira, prompting the embattled currency to surge in value. Turkey has in recent weeks been battling through one of the most troubled periods for its economy under the rule of President Recep Tayyip […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":{"0":"post-31156","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-business"},"yoast_head":"\n