Published: Fri, September 14, 2018
Business | By Eloise Houston

Turkey raises interest rates to 24% in new bid to boost lira

Turkey raises interest rates to 24% in new bid to boost lira

Turkey's Central Bank (CBRT) has raised its benchmark one-week repo interest rate by 625 basis points from 17.75 percent to 24 percent, the Monetary Policy Committee said Thursday in a statement.

The rate hit the lowest level in two weeks. But there are also private banks, they are acting according to what?

"The Governing Council expects the key European Central Bank interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary", it said, repeating its guidance. The rate hike could squeeze growth further, but independent experts say it is needed to contain inflation of about 18% and support the currency.

Right before the bank acted, Erdogan decried high interest rates as a "tool of exploitation". "Erdogan´s speech. was meant to put distance between himself and the (bank´s) decision".

The bank's decision was announced hours after Erdogan triggered tumult by repeating his hostility to higher borrowing costs and issuing an order that limited the use of foreign currency in domestic transactions.

Who is responsible for Turkey's lira crisis?

The lira has lost more than 40 per cent of its value this year amid a diplomatic spat with the U.S. and signs of an overheating economy.

Relations with the USA deteriorated last month after Washington imposed sanctions on two Turkish ministers over the detention of an American pastor and President Donald Trump doubled steel and aluminium tariffs on Turkey. The lira has lost roughly 40 percent of its value against the USA dollar this year, and its inflation rate sits at about 18 percent.

BTC-240 min
BTC-240 min

Economists have warned of a possible recession in Turkey after a slowdown in the second financial quarter of 0.9 percent, compared to 1.5 percent in the first quarter of this year. It later shed some of those gains but was still up over 2.7 per cent in value at 6.15 to the dollar.

The revamp was the latest in a series of steps Erdogan has taken to assume new powers since he won a presidential election in June, heralding the move to an executive presidency which grants sweeping authority.

It remains to be seen how the news will sit with Erdogan, however.

Zafer Sonmez, head of Turkey and Africa for Malaysia's government investment vehicle Khazanah Nasional Bhd, was named general manager.

Erdogan said last September that the fund was to be reorganised after dismissing Mehmet Bostan, its chairman, over its failure to meet targets.

The fund was created in the wake of an attempted coup in 2016 to help fund infrastructure projects and shore up markets.

The fund's other assets include the state's minority 49.12-percent shareholding in flag carrier Turkish Airlines, as well as state-owned enterprises such as the PTT Turkish post office.

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