The Turkish lira has strengthened after the central bank raised one of its interest rates to support the currency.
Bank officials also said they would, if necessary, take further steps to stop the lira from falling.
The overnight lending rate was put up to 7.25 percent from 6.5 percent. Raising that rate increases the real interest rate on lira assets and makes them more attractive to foreign investors, supporting the currency. Whether that in itself will be enough remains to be seen.
The move was in response to capital outflows that have knocked the value of the lira down as much as nine percent against the dollar, despite attempts by the central bank to prop it up.
The lira has been weakened by uncertainty over the US Federal Reserve’s bond-buying stimulus programme and by widespread public demonstrations against the government last month.
The bank kept other rates – such as its one-week repo policy rate and its benchmark borrowing rate unchanged.
It is a major reversal by the central bank, which two weeks ago was railing against what it called the ‘interest rate lobby’ which it said was conspiring to manipulate interest rates.
At that time it steadfastly refused to use a shift in interest rates to support the lira.
Prime Minister Tayyip Erdogan has long championed low interest rates, fearing an economic slowdown ahead of elections, but the central bank has already burned through $6.6 billion (five billion euros) of its reserves to try and boost the lira, a policy it cannot pursue indefinitely.
Reassurances from Fed Chairman Ben Bernanke last week over the pace of the US central bank’s plans to withdraw monetary stimulus have boosted sentiment in emerging markets, lending support to the lira in recent days and taking some pressure off Turkey’s central bank.
It nonetheless followed other emerging markets in lifting rates. Last week, India joined Brazil and Indonesia in raising some of its interest rates to try to prevent a rout of its currency.
- 1Leaders sign off on pipeline to bring gas from Azerbaijan to Europe
- 2Australian government forced to think again on backpacker tax
- 3Eurostar sales fall after Paris and Brussels terror attacks
- 4Security concerns hit tourism industry, Thomas Cook shares slump
- 5How to receive EU funding for your SME’s dual-use project
latest economy news
IMF urges France to speed up reforms to create jobs and cut debt
French fuel strike: frustration at the pumps and an investment warning
Moody’s downgrades Deutsche Bank’s credit rating
Private consumption and construction investment boost German growth in Q1
Brexit vote: one month away the recession warnings keep coming
Wires > Business
- 19:28 CET Luxembourg denies report it offers unwritten tax rulings
- 19:28 CET EU regulators clear $100 billion-plus AB InBev, SABMiller deal
- 19:23 CET Serious Fraud Office re-examines funding model
- 19:10 CET UK waste manager Shanks considers bid for Van Gansewinkel
- 18:47 CET Chinese banks will fill vacuum as Europeans retreat – Barclays‘…
- 18:38 CET Gecina maintains snubbed bid for Fonciere de Paris
- 18:34 CET Monsanto to reject Bayer bid, seek higher price – sources
- 18:32 CET Too soon to discuss new ECB stimulus package – Constancio