Country makes sharp emergency rate hike to stem lira losses

pulse

May 23, 2018 6:02 PM

The Turkish central bank said on Wednesday it had hiked one of its key interest rates 300 basis points (bps) to bolster the lira after the currency plunged to historic lows against the US dollar.

The bank said after an emergency meeting of its monetary policy committee it was raising the late liquidity window (LLW) lending rate from 13.5 percent to 16.5 percent.

The lira had earlier lost over 3.5 percent in value against the dollar but sharply gained in value after the bank's announcement, gaining 2.1 percent in value on the day to trade at 4.55 lira to the dollar.

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

"Accordingly, the committee decided to implement a strong monetary tightening to support price stability," it added.

Turkish inflation reached 10.85 percent in April from the same month the year earlier and the economy has been plagued by fears of overheating despite impressive growth.

The central bank's statement ended days of suspense on the markets over whether it would implement a rate hike after President Recep Tayyip Erdogan pressed for lower rates to boost growth.

But in a hawkish statement, the central bank said it would continue to use "all instruments" to achieve price stability.

"A tight stance in monetary policy will be maintained decisively until the inflation outlook displays a significant improvement," it added.

The sharp fall in the currency's value has come at a hugely sensitive time as Turkey heads to June 24 presidential and parliamentary elections where Erdogan is seeking a new mandate and a thumping parliamentary majority.

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