Turkey's central bank hikes key interest rate to 24 percent
14 September, 2018, 04:13 | Author: Mary Valdez
The monetary policy committee of the bank said the one-week repo rate was being lifted to 24 percent from 17.75 percent, the first rate hike since June.
All 11 economists in a Reuters poll had forecast the bank would tighten, with the predictions ranging between 225-725 basis points as it balances concerns over the lira's weakness with worries about a sharp economic slowdown.
Aberdeen Standard Investments Head of Emerging Market Debt, Brett Diment, said: "It is pleasing to see common sense prevail".
The next two Monetary Policy Committee meetings are to be held in October.
The bank vowed the tight stance in monetary policy would be "maintained decisively until inflation outlook displays a significant improvement" in the statement.
The central bank said there was still an upside risk to Turkey's inflation outlook from what it called a deterioration in pricing behaviour, despite weaker domestic demand conditions.
"Accordingly, the Committee has made a decision to implement a strong monetary tightening to support price stability", it added, explaining the hike. It later shed some of those gains but was still up 3.0 per cent in value at 6.14 to the dollar.
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The Turkish currency lost almost a quarter in value against the dollar in August.
The main refinancing rate, which determines the cost of credit in the economy, remained unchanged at 0.00 percent while the rate on the marginal lending facility - the emergency overnight borrowing rate for banks - remains at 0.25 percent.
"My sensitivities concerning interest rates are the same, nothing has changed", he said. "The central bank is independent and makes its own decisions".
Phoenix Kalen, director of EM strategy at Societe Generale, said the market was both pleased and confused by the bank move.
"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. "A rate hike would be an important step to restore market confidence in the lira".
That decision sent the lira tumbling by a quarter and prompted Turkish authorities to impose a series of measures meant to support the currency.
Erdogan has cast the lira crisis as an "economic war" targeting Turkey, repeatedly urging Turks to sell their dollar savings to shore up the lira.
He also decreed that local property sales, rental contracts and leasing transactions could no longer be conducted in foreign currency, in a fresh bid to buttress the flagging lira.
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