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Turkey hikes interest rate again as vote looms
ANKARA, June 7, 2018 (BSS/AFP) – The Turkish central bank on Thursday hiked
interest rates for the second time in two weeks, prompting the lira to rally
strongly with elections on the horizon.
The 125 basis point (bps) headline interest rate hike comes after the bank
raised its emergency rate by 300 bps on May 23.
On Thursday the bank said it would raise the one-week repo rate to 17.75
percent from 16.5 percent, after a monetary policy committee (MPC) meeting.
The one-week repo rate has been the bank’s policy rate since June 1, after
a long-awaited overhaul of its interest rates.
The lira surged after the bank’s announcement at 1100 GMT, gaining 1.7
percent against the dollar to reach 4.48 after previous record lows last
month.
Before the bank’s move, the lira was at 4.58 against the greenback. Since
January, the lira has lost over 18 percent against the dollar and over six
percent in the past month.
The hikes come despite repeated calls for lower interest rates by President
Recep Tayyip Erdogan, who has called interest rates the “mother and father of
all evil”.
The bank’s decision to raise rates was hoped for by the markets after the
inflation rate jumped in May from 10.85 percent to 12.15 percent from the
same period last year.
The bank said in a statement that the “tight stance” in monetary policy
would be maintained until “inflation outlook displays significant
improvement”.
“If needed, further monetary tightening will be delivered,” the bank added.
Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset
Management, said the decision “should help improve sentiment, and stabilise
the market a bit into the elections”.
Turks will vote in parliamentary and presidential elections on June 24 in a
surprisingly tight contest, with Erdogan seeking a second mandate as
president.
BSS/AFP/SR/1845 HRS