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Turkish currency recovers after massive rate increase
January 29, 2014 , 7 : 00 pm GST
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A picture of Turkish currency lira. Photo - Supplied
Turkey's central bank hiked all its key interest rates in dramatic fashion at an emergency midnight policy meeting, ignoring opposition from Prime Minister Tayyip Erdogan as it battles to defend the country's crumbling lira currency.
The bank raised its overnight lending rate to 12 per cent from 7.75 per cent, its one-week repo rate to 10 per cent from 4.5 per cent, and its overnight borrowing rate to 8 per cent from 3.5 per cent — all much sharper moves than economists had forecast.
A poll of 31 economists on Monday found a consensus pointing to a 2.25 percentage-point rise in the lending rate. Only one forecast a move this dramatic.
The boldness of the actions stunned investors, sending the lira sharply higher and stirring hopes it would short-circuit a vicious cycle of selling in emerging markets. Asian markets rallied amid a broad revival in risk appetite.
By 0449 GMT the lira traded at 2.166 to the dollar, strengthening further from 2.18 per dollar immediately after the decision, and 2.25 before the bank's action.
The currency has gained almost 4 per cent since late on Tuesday and almost 10 per cent from Monday's record low of 2.39, in its biggest surge in five years.
Erdogan, keen to maintain economic growth ahead of an election cycle starting in two months, has been a vociferous opponent of higher borrowing costs, railing against what he describes as an 'interest rate lobby' of speculators seeking to stifle growth and undermine the economy.
"I would like you to know that as always, I am against a hike in interest rates today," the prime minister told reporters.
"But of course I don't have the authority to interfere with the central bank ... They are responsible for anything that could arise," he added.
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