Massive interest rate hikes by Turkey central bank have had only limited success in defending the country’s currency – the lira.
The bank dramatically raised all its key interest rates, which caused an initial surge in value against the dollar and other currencies on Wednesday, but that did not last.
On the streets of Istanbul some are worried about the effect this will have on growth. One man said: “I believe that this will have negative consequences for the Turkish people. The inflation forecast has risen sharply, along with interest rates, and what they are doing is very wrong and just motivated by politics.”
Turkey’s government was opposed to any interest rate rise, but accepted that it was – as one senior official said – a tough but necessary call.
The financial markets are watching very closely and some share the fear on the streets.
Baader Bank’s Robert Halver said: “What the Turks are doing here, through their central bank is very dangerous. To more than double the one-week repo rate from 4.5 percent to 10 percent, could damage the economy massively, it stops the currency falling initially, but there will be higher credit costs and Turkey’s solid economic growth is very much in danger.”
But Turkey’s Finance Minister Mehmet Simsek played down the impact on growth.
He said the country’s economy would have suffered greater damage if the credibility of the central bank had been undermined.