Economy

Turkey central bank surprises markets with big rate hike

Turkey central bank surprises markets with big rate hike”

"Accordingly, the Committee has made a decision to implement a strong monetary tightening to support price stability", the monetary policy committee statement said.

"If they hadn't hiked today then the real risk was that the lira would sell off sharply again and the country would swiftly head towards a balance of payments and even a banking crisis", said Aberdeen Standard Investments head of emerging market debt Brett Diment.

The appointment of Berat Albayrak boosted expectations the president - who wants to see lowering borrowing costs to spur credit growth and new construction - will look to exercise greater influence over monetary policy.

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.

The lira rose after the decision and was trading 3.1 per cent higher at 6.1604 per dollar at 2:23 p.m.in Istanbul.

The MSCI All-Country World index, which tracks shares in 47 countries, rose 0.24 percent and touched its highest since September 4.

The lira has lost 40 percent of its value against the United States dollar this year over concerns about Mr Erdogan's influence and a diplomatic spat between Ankara and Washington but firmed to 6.01 following the interest rate decision, from more than 6.4176 beforehand.

Ignoring calls for restraint from President Recep Tayyip Erdoğan, the bank raised its main short-term rate from 17.5% following weeks of pressure from global investors. This as inflation was up to nearly 18 percent in August, its highest since September 2003 - the year Erdogan first took power as prime minister.

"It was a big surprise to us, but probably to every Turkey-watcher", said Nora Neuteboom, an economist at ABN Amro, saying the move was a "positive signal" with the bank wanting to show its independence and commitment to fight inflation.

There had been indications from the bank that it would raise rates after inflation came in at almost 18 per cent in August, according to official data last week.

"The central bank is independent and makes its own decisions", he said.

The central bank said it was returning to funding via one-week repos from Friday, having funded the market at an overnight lending rate of 19.25 per cent for the last month. Subsequently, the lira lost about 25 per cent of its value while authorities have taken a series of steps to support it, with the bank taking liquidity measures and the banking watchdog limiting derivative transactions. He also called on Turks to convert their savings to lira and trust in the national currency.

In another bid to prop up the lira, Erdogan earlier on Thursday ordered by decree that property agreements in foreign currencies would not be allowed.



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