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Financial News: Turkey Hikes Key Rates Unexpectedly

Turkey Hikes Key Rates Unexpectedly

05/24/2018 - 00:44:00 (RTTNews)

(RTTNews) - Turkey's central bank decided to lift its key interest rates by 300 basis points to support weakening lira, at an unscheduled meeting on Wednesday.

The Monetary Policy Committee raised the lending rate to 16.5 percent from 13.5 percent, while the borrowing rate was kept unchanged at zero percent. One-week repo rate was retained at 8 percent.

Investors had been expecting such a move weeks ago to combat the fall in lira. The latest move came ahead of June election.

The MPC observed that current elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior.

Accordingly, policymakers decided to implement a strong monetary tightening to support price stability.

The bank expressed its willingness to use all available tools in pursuit of the price stability objective. Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement, the bank said.

Jason Tuvey, an economist at Capital Economics, said while this move has provided some support to the currency, investors are likely to be waiting for signs that this represents a more fundamental shift in policy.

The economist noted that the relief such rate hikes provided in the past has often been short-lived. This time, given the large current account deficit and high inflation, any sign of fiscal loosening or demands for lower rates ahead of the election could put the lira back under pressure, Tuvey added.

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