News / Economy

    Turkish Central Bank Paves Way for Rate Hike After Lira Slide

    FIILE - A woman walks past a currency exchange office in downtown Istanbul, June 21, 2013.
    FIILE - A woman walks past a currency exchange office in downtown Istanbul, June 21, 2013.
    Reuters
    Turkey's central bank signaled on Monday that it is set to raise interest rates to stabilize a plunging lira, after intervening heavily last week to shore up the currency as it sank to record lows.
     
    In a rare written statement ahead of a monetary policy committee meeting, Governor Erdem Basci said global policy uncertainty and volatility would not be allowed to damage financial and price stability in Turkey.
     
    “A measured step to widen the interest rate corridor will be on the agenda of the next monetary policy committee meeting,” Basci said in the statement ahead of the bank's July 23 meeting.
     
    That suggests the bank is ready to try to stabilize the market by raising its overnight lending rate, the upper end of the 'corridor' or gap between the rates at which it lends and borrows money to keep markets and the currency steady.
     
    Emerging markets like Turkey have been hit hard since early May, when the U.S. Federal Reserve signaled it may begin withdrawing its stimulus, the first hint of a U-turn in the easy policy the world's major central bank have implemented since the financial crisis.
     
    Last month's anti-government protests across Turkey added to pressure on the lira.
     
    The central bank appears to be ready to take action to support the currency, even though Prime Minister Tayyip Erdogan will be reluctant to see a rate hike that slows economic growth.
     
    In a presentation to parliament published later on Monday on the central bank website, Basci said the bank would continue to take the necessary measures to maintain market stability and said capital inflows had weakened recently.
     
    The currency firmed to 1.9380 to the dollar by 1533 GMT from 1.9450 before the bank's statement. The yield on 10-year government bonds fell, as did the cost of insuring Turkish debt, with five-year credit default swaps down 11 basis points from Friday to 208 bps, according to Markit.
     
    “The CBRT [central bank] bows to the inevitable ... clearly indicating that it will hike the top end of the rates corridor,” said Timothy Ash, head of emerging markets research at Standard Bank.
     
    Raising the lending rate would effectively increase the real interest rate on lira assets, making them more attractive to foreign investors.
     
    In a presentation to parliament published later on Monday on the central bank website, Basci said the bank would continue to take necessary measures to maintain market stability and said capital inflows had weakened recently.
     
    Burning Up Reserves
     

    The central bank had stepped up its foreign currency auction sales since June 11 in a bid to underpin the currency, and has now sold $6.3 billion this year. But analysts have pointed out that this only runs down the country's net reserves, which bankers calculate have fallen below $40 billion.
     
    “The CBRT is acknowledging by these actions that its prior strategy of using FX reserves to defend the lira simply was not working, and risked just blowing scarce reserves away,” said Ash.
     
    Bankers say the central bank may have to raise the upper end of the rate corridor by at least 100 basis points to stop the currency slide.
     
    “The announcement shows that the CBRT is ready to take action to calm the markets. This announcement is likely to stop the speculation that the CBRT is against any kind of rate hikes,” JP Morgan analyst Yarkin Cebeci said in a note.
     
    The central bank's overnight lending rate is currently at 6.5 percent, its one-week repo policy rate at 4.5 percent and its overnight borrowing rate, the lower end of the corridor, at 3.5 percent.
     
    Erdogan's AK Party has taken Turkey from a crisis-prone economy to Europe's fastest-growing over the past decade, helping it to win three successive elections. It is a record Erdogan is keen to maintain as elections approach next year.
     
    Erdogan said on Monday the central bank and other institutions were acting “with determination” in response to market volatility and the hints of a tighter Fed policy.
     
    “Our central bank and other relevant institutions are taking the necessary steps in a timely fashion in coordination and with determination to minimize the negative impact of these developments which are affecting all emerging markets,” it said.
     
    The central bank has been reluctant to hike rates following a credit-fuelled boom, while Erdogan, aware of the negative impact on Turks of higher borrowing costs, has blamed a “high interest rate lobby” for instigating anti-government protests.
     
    “Higher policy rates will inevitably mean lower growth, and it will be interesting to hear the reaction from policy hawks in the government,” Ash said of the central bank statement.
     
    “It is interesting how the CBRT has announced this move pre the July 23 MPC meeting - clearly they hope that this 'verbal intervention' will limit the extent they will have to hike the lending rate come that day.”

    You May Like

    Russia's Expat Community Shrinking

    Russia's troubled economy, tensions with West have led hundreds of thousands of foreigners to leave for better opportunities

    Accelerating the Push Against Islamic State: What Will Work?

    Experts stress need to step up military action, address root causes of Muslims' disaffection, counter IS social media messages in a massive way

    Experts: N. Korean Abductions Sought to Halt Brain Drain

    Pyongyang abducted about 3,800 South Koreans and more than a dozen Japanese nationals in late 1970s

    This forum has been closed.
    Comments
         
    There are no comments in this forum. Be first and add one

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    German Artists to Memorialize Refugees with Life Jacket Exhibiti
    X
    Hamada Elsaram
    February 05, 2016 4:30 PM
    Sold in every kind of shop in some Turkish port towns, life jackets have become a symbol of the refugee crisis that brought a million people to Europe in 2015.  On the shores of Lesbos, Greece, German artists collect discarded life jackets as they prepare an art installation they plan to display in Germany.  For VOA, Hamada Elrasam has this report from Lesbos, Greece.
    Video

    Video German Artists to Memorialize Refugees with Life Jacket Exhibit

    Sold in every kind of shop in some Turkish port towns, life jackets have become a symbol of the refugee crisis that brought a million people to Europe in 2015.  On the shores of Lesbos, Greece, German artists collect discarded life jackets as they prepare an art installation they plan to display in Germany.  For VOA, Hamada Elrasam has this report from Lesbos, Greece.
    Video

    Video E-readers Help Ease Africa's Book Shortage

    Millions of people in Africa can't read, and there's a chronic shortage of books. A non-profit organization called Worldreader is trying to help change all that one e-reader at a time. VOA’s Deborah Block tells us about a girls' school in Nairobi, Kenya where Worldreader is making a difference.
    Video

    Video Genius Lets World Share Its Knowledge

    Inspired by crowdsourcing companies like Wikipedia, Genius allows anyone to edit anything on the web, using its web annotation tool
    Video

    Video Former Drug CEO Martin Shkreli Angers Lawmakers

    A former U.S. pharmaceutical business executive has angered lawmakers by refusing to explain why he raised the price of a life-saving pill by 5,000 percent. Martin Shkreli was removed from a congressional hearing on Thursday after citing his Fifth Amendment right to stay silent. Zlatica Hoke has more.
    Video

    Video Super Bowl TV Commercials are Super Business for Advertisers

    The Super Bowl, the championship clash between the two top teams in American Football, is the most-watched sporting event of the year, and advertisers are lining up and paying big bucks to get their commercials on the air. In fact, the TV commercials during the Super Bowl have become one of the most anticipated and popular features of the event. VOA's Brian Allen has a sneak peek of what you can expect to see when the big game goes to commercial break, and the real entertainment begins.
    Video

    Video In Philippines, Mixed Feelings About Greater US Military Presence

    In the Philippines, some who will be directly affected by a recent Supreme Court decision clearing the way for more United States troop visits are having mixed reactions.  The increased rotations come at a time when the Philippines is trying to build up its military in the face of growing maritime assertiveness from China.  From Bahile, Palawan on the coast of the South China Sea, Simone Orendain has this story.
    Video

    Video Microcephaly's Connection to Zika: Guilty Until Proven Innocent

    The Zika virus rarely causes problems for the people who get it, but it seems to be having a devastating impact on babies whose mothers are infected with Zika. VOA's Carol Pearson has more.
    Video

    Video Solar Innovation Provides Cheap, Clean Energy to Kenya Residents

    In Kenya, a company called M-Kopa Solar is providing clean energy to more than 300,000 homes across East Africa by allowing customers to "pay-as-you-go" via their cell phones. As Lenny Ruvaga reports from Kangemi, customers pay a small deposit for a solar unit and then pay less than a dollar a day to get clean energy to light up their homes or businesses.
    Video

    Video Stunning Artworks Attract Record Crowds, Thanks to Social Media

    A new exhibit at the oldest art museum in America is shattering attendance records. Thousands of visitors are lining up to see nine giant works of art that have gotten a much-deserved shot of viral marketing. The 150-year-old Smithsonian American Art Museum has never had a response quite like this. VOA's Julie Taboh reports.
    Video

    Video Apprenticeships Put Americans on Path Back to Work

    Trying to get more people into the U.S. workforce, the Obama administration last year announced $175 million in grants towards apprenticeship programs. VOA White House correspondent Aru Pande went inside one training center outside of Washington that has gained national recognition for helping put people on the path to employment.
    Video

    Video New Material May Reduce Concussion Effects

    As the 2016 National Football League season reaches its summit at the Super Bowl this coming Sunday (2/7), scientists are trying to learn how to more effectively protect football players from dangerous and damaging concussions. Researchers at Cardiff and Cambridge Universities say their origami-based material may solve the problem. VOA’s George Putic reports.
    Video

    Video Saudi Arabian Women's Sports Chip Away at Stereotypes

    Saudi Arabian female athletes say that sports are on the front line of busting traditions that quash women’s voices, both locally and internationally. In their hometown of Jeddah, a group of basketball players say that by connecting sports to health issues, they are encouraging women and girls to get out of their homes and participate in public life. VOA’s Heather Murdock reports.
    Video

    Video A Year Later, Fortunes Mixed for Syrians Forging New Lives in Berlin

    In April of last year, VOA followed the progress of six young Syrian refugees -- four brothers and their two friends -- as they made their way from Libya to Italy by boat, and eventually to Germany. Reporter Henry Ridgwell caught up with the refugees again in Berlin, as they struggle to forge new lives amid the turmoil of Europe's refugee crisis.
    Video

    Video Zika Virus May be Hard to Stop

    With the Zika virus spreading rapidly, the World Health Organization Monday declared Zika a global health emergency. As Alberto Pimienta reports, for many governments and experts, the worst is yet to come.

    World Currencies

    EUR
    USD
    0.8923
    JPY
    USD
    117.33
    GBP
    USD
    0.6835
    CAD
    USD
    1.3712
    INR
    USD
    67.695

    Rates may not be current.