AFP, Istanbul :
The Turkish central bank on Thursday announced a surprise hike in its main interest rate, the first in nearly three years as it battles to prop up the embattled lira.
The monetary policy committee of the bank said the one-week repurchasing rate was being lifted to 8.0 percent from 7.5 percent, the first rate hike by the bank since January 2014.
The hike initially prompted a rally in the value of the Turkish lira but it then lost ground after the European Parliament voted to freeze EU membership talks with Turkey.
The lira has lost over 10 percent in value against the dollar over the last month amid doubts over Turkey’s flagging growth and fears the drive by President Recep Tayyip Erdogan for a presidential system will create more instability.
The bank is nominally independent but its decision follows a number of high-level political meetings on the economy including talks at Erdogan’s palace late on Wednesday.
“The decision to begin the tightening cycle was clearly motivated by the fall in the lira,” said William Jackson, senior emerging markets economist at Capital Economics in London.
He said the losses of the lira this month were the worst among any emerging market currency and even more severe than those of the Mexican peso which was battered in the wake of Donald Trump’s election in the US.
The bank said exchange rate movements due to heightened global uncertainty and volatility pose “upside risks” to the inflation outlook.
It said the rate hike was aimed at containing the “adverse impact of these developments on expectations and the pricing behaviour.”
Inflation in October was 7.16 percent, still well off the bank’s target of five percent.
Erdogan has pressed for lower rates to boost growth, which some economists fear has slipped into negative territory in the third quarter due to an output slump after the July 15 failed coup.
He spooked markets on Wednesday with a new diatribe against the central bank, saying people’s rights should not be “wasted” by high interest rates.
The Turkish central bank on Thursday announced a surprise hike in its main interest rate, the first in nearly three years as it battles to prop up the embattled lira.
The monetary policy committee of the bank said the one-week repurchasing rate was being lifted to 8.0 percent from 7.5 percent, the first rate hike by the bank since January 2014.
The hike initially prompted a rally in the value of the Turkish lira but it then lost ground after the European Parliament voted to freeze EU membership talks with Turkey.
The lira has lost over 10 percent in value against the dollar over the last month amid doubts over Turkey’s flagging growth and fears the drive by President Recep Tayyip Erdogan for a presidential system will create more instability.
The bank is nominally independent but its decision follows a number of high-level political meetings on the economy including talks at Erdogan’s palace late on Wednesday.
“The decision to begin the tightening cycle was clearly motivated by the fall in the lira,” said William Jackson, senior emerging markets economist at Capital Economics in London.
He said the losses of the lira this month were the worst among any emerging market currency and even more severe than those of the Mexican peso which was battered in the wake of Donald Trump’s election in the US.
The bank said exchange rate movements due to heightened global uncertainty and volatility pose “upside risks” to the inflation outlook.
It said the rate hike was aimed at containing the “adverse impact of these developments on expectations and the pricing behaviour.”
Inflation in October was 7.16 percent, still well off the bank’s target of five percent.
Erdogan has pressed for lower rates to boost growth, which some economists fear has slipped into negative territory in the third quarter due to an output slump after the July 15 failed coup.
He spooked markets on Wednesday with a new diatribe against the central bank, saying people’s rights should not be “wasted” by high interest rates.
