Turkey raises interest rate to boost ailing lira
Turkey has increased its interest rate as part of efforts to boost the ailing lira but as economists say the move failed to impress markets looking for a sharpen action.
The Turkish central bank raised its main interest rate on Tuesday by 75 basis points. The bank announced in a statement that the overnight lending rate was being lifted to 9.25 percent from 8.5 percent. This is the second rate hike by the bank since November 2016. This comes as the bank kept its one-week repurchasing rate unchanged at 8.0 percent while the overnight borrowing rate was kept at 7.25 percent.
Hoping for even more, the markets were taken aback by the lack of any hike in the repurchasing rate. As a result of the move, the lira lost 1.25 percent against the dollar to trade at 3.8 to the greenback.
Some economists expected a hike of 100 basis points after the lira lost 7 percent of its value against the dollar in the first four weeks of 2017 alone. The currency has lost a quarter in value against the dollar over the last year.
Turkey’s central bank said domestic demand in Turkey was on a weaker course, warning that a "significant rise in inflation" was expected in the short term.
During the early days of January 2017, inflation was reported at 8.5 percent in December, up from 7.0 in November.
Economists said that the decision showed the bank was not convinced by the need for radical action to halt the plunge in value of the lira.
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