Turkish lira eases after hefty central bank rate hike
Turkish lira eases after hefty central bank rate hike
Erdogan appoints himself chairman of Turkey's sovereign wealth fund
14 September, 2018, 14:42
In a bid to stabilize Turkey's faltering currency, the bank boosted interest rates by more than 6 percentage points, to 24 percent, even though Erdogan has vowed keep them steady - or even lower them.
Turkish President Tayyip Erdogan has appointed himself chairman of the country's sovereign wealth fund and completely changed its board, naming Finance Minister Berat Albayrak as his deputy, the country's Official Gazette said on Wednesday.
The lira reacted strongly to the rate rise, initially up 5% in value to 6.0 lira to the USA dollar, later settling up more than 2.7% at 6.15 to the dollar.
The lira firmed to 6.01 against the dollar following the decision, from more than 6.4176 beforehand.
Phoenix Kalen at Societe Generale said the market was both pleased and confused by the bank's move.
"However, one swallow doesn't make a summer", she warned.
The central bank and government have taken a series of measures to support the ailing currency, with Erdogan ruling early on Thursday that property sales and rental agreements must be made in lira, putting an end to such deals in foreign currency.
Inflation also soared this month to a 15-year high of nearly 18%.
Must give a lesson to those who exploit with price hikes.
A "tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement", it added.
TRT World's Turkey analyst Yusuf Erim has more.
The bank´s intervention was the latest aggressive rate hike to calm economic turbulence in an emerging market after the Argentinian central bank´s recent hike from 45 to 60 percent on August 30.
"Turkey needs structural reforms to increase productivity, to decrease its dependence on short-term portfolio flows and to decrease the rigidness in the labour market".
The bank is also fighting a losing battle against inflation with annual consumer price inflation hitting 17.9 percent last month, its highest level since late 2003.
"Interest rates are the cause, inflation is the result. If you say "inflation is the cause, the rate is the result", you do not know this business, friend", he added. And on the morning of the rate hike decision, Erdogan was busy.
The bank later said funding would be provided via the policy rate, the one week repo auction rate, instead of through overnight lending from September 14.
A growing crisis became acute earlier this year following the detention of an American pastor on espionage and terror-related charges, which prompted Donal Trump to double the import tariffs on Turkish steel and aluminium.
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