News / Economy

Turkey's Central Bank Hikes Interest Rates

Turkey's Central Bank Governor Erdem Basci speaks during a press conference in Ankara, Turkey, Tuesday, Jan. 28, 2014.
Turkey's Central Bank Governor Erdem Basci speaks during a press conference in Ankara, Turkey, Tuesday, Jan. 28, 2014.
Dorian Jones
In a bid to rescue the tumbling Turkish lira, the country’s central bank has substantially hiked all its key interest rates. 

In a dramatic meeting midnight local time on Tuesday, Turkey's central bank took the financial markets by surprise by ordering a massive across-the-board hike in interest rates, which meant that a key interest rate was more than doubled, to 10 percent.
 
Atilla Yesilada of Global Source Partners, an Istanbul-based financial consulting firm, says the aggressive move was unavoidable.
 
"Had it not been for this interest rate hike, the exchange rate would have become a bottomless pit, dragging half of Turkey’s wealth and most important corporations down with it. It was a move that was forced by the necessity," he said.
 
The Turkish lira has plummeted ever since a series of investigations into alleged government corruption was launched last month, reaching new record lows on a nearly weekly basis.  Following Tuesday's rate hike, the lira initially recovered some of its losses, but it again started to fall.
 
Inan Demir, chief economist at Istanbul-based Finans bank, says many Turkish companies heavily indebted in foreign currency are seeing this as an opportunity to buy foreign currency.
 
"The corporations are probably seeing these levels as an opportunity to buy dollars for their upcoming redemption or import bills, so this is going to be one source of foreign currency demand. "
 
Demir warns that despite the interest rate hikes, international investors remain nervous about Turkey, which has one of the largest current account deficits in the world. Adding to that concern, the U.S. Federal Reserve Bank is expected to continue to phase out its policy of injecting large amounts of money into financial markets.
 
That policy has helped sustain the Turkish economy, according to economist Demir. He warns that further interest rate hikes maybe needed.
 
"What you have is a current account deficit county, with significant domestic political risks. Against that backdrop, international investors will still anticipate further increases in the level of that single policy rate," he said.
 
Economists and analysts say the political and economic uncertainty surrounding Turkey since anti-government protests erupted last summer has resulted in a marked downturn in long-term international investment. Analyst Yesilada warns that with the real Turkish economy facing difficult times, new investment is unlikely .
 
"Already, January business and consumer confidence indexes revealed a very sharp decline in numbers. Sort of a confidence crisis largely caused by the fight in Ankara. Now we have, on top of that, we have a massive interest shock -- roughly 300 basis points.  The inescapable conclusion is Turkey will suffer a relatively deep recession," said Yesilada.
 
A booming Turkish economy is one of Turkish Prime Minister Recep Tayyip Erdogan's main achievements and is widely cited one of the main factors behind his more than a decade of electoral success.  The current economic woes come at a bad time for the prime minister, with key local elections set for March.
 
Erdogan has strongly opposed any interest rate hikes, accusing those calling for them of being part of an international conspiracy against his government. Observers warn such statements will likely make international investors even more nervous about Turkey and put further pressure on its currency.

You May Like

Video Is West Doing Enough to Tackle Islamic State?

There is growing uncertainty over whether West’s response to ISIS is adequate More

China Crackdown on Dual Citizens Causes Concern

New policy encourages reporting people who obtain citizenship in another country, but retain Chinese citizenship; move spurs sharp debate More

Video Coalition to Fight Islamic State Could Reward Assad

Losing ground to Islamic State fighters, Syria's government says it is ready to cooperate with international community More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Is West Doing Enough to Tackle Islamic State?i
X
Henry Ridgwell
August 29, 2014 12:26 AM
U.S. President Barack Obama has ruled out sending ground troops to Iraq to fight militants of the so-called Islamic State, or ISIS, despite officials in Washington describing the extremist group as the biggest threat the United States has faced in years. Henry Ridgwell reports from London on the growing uncertainty over whether the West’s response to ISIS will be enough to defeat the terrorist threat.
Video

Video Is West Doing Enough to Tackle Islamic State?

U.S. President Barack Obama has ruled out sending ground troops to Iraq to fight militants of the so-called Islamic State, or ISIS, despite officials in Washington describing the extremist group as the biggest threat the United States has faced in years. Henry Ridgwell reports from London on the growing uncertainty over whether the West’s response to ISIS will be enough to defeat the terrorist threat.
Video

Video Pachyderms Play Polo to Raise Money for Elephants

Polo, the ancient team competition typically played on horseback, is known as the “sport of kings.” However, the royal version for one annual event in Thailand swaps the horse for the kingdom’s national symbol - the elephant. VOA Correspondent Steve Herman in Samut Prakan reports that the King’s Cup Elephant Polo tournament is all for a good cause.
Video

Video Coalition to Fight Islamic State Could Reward Assad

The United States along with European and Mideast allies are considering a broader assault against Islamic State fighters who have spread from Syria into Iraq and risk further destabilizing an already troubled region. But as VOA State Department Correspondent Scott Stearns reports, confronting those militants could end up helping the embattled Syrian President Bashar al-Assad.
Video

Video Made in America Socks Get Toehold in Online Fashion Market

Three young entrepreneurs are hoping to revolutionize the high-end sock industry by introducing all-American creations of their own. And they’re doing most of it the old-fashioned way. VOA’s Julie Taboh recently caught up with them to learn what goes into making their one-of-a-kind socks.
Video

Video Americans, Ex-Pats Send Relief Supplies to West Africa

Health organizations from around the world are sending supplies and specialists to the West African countries that are dealing with the worst Ebola outbreak in history. On a smaller scale, ordinary Americans and African expatriates living in the United States are doing the same. VOA's Carol Pearson reports.
Video

Video America's Most Popular Artworks Displayed in Public Places

Public places in cities across America were turned into open-air art galleries in August. Pictures of the nation’s most popular artworks were displayed on billboards, bus shelters, subway platforms and more. The idea behind “Art Everywhere,” a collaborative campaign by five major museums is to allow more people to enjoy art and learn about the country’s culture and history. Faiza Elmasry has more.
Video

Video Chinese Doctors Use 3-D Spinal Implant

A Chinese boy suffering from a debilitating bone disease has become the first patient with a part of his spine created in a three-dimensional printer. Doctors say he will soon regain normal mobility. VOA’s George Putic reports.
Video

Video Uneasy Calm Settles Over Israel, Gaza Strip

Israel and the Gaza Strip have been calm since a cease-fire set in Tuesday evening, ending seven weeks of hostilities. Hamas, which controls Gaza, declared victory. Israelis were more wart. VOA’s Scott Bobb reports from Jerusalem.
Video

Video India’s Leprosy Battle Stymied by Continuing Stigma

Medical advancements in the treatment of leprosy have greatly diminished its impact around the world, largely eliminating the disease from most countries. India made great strides in combating leprosy, but still accounts for a majority of the world’s new cases each year, and the number of newly infected Indians is rising - more than 130,000 recorded last year. Doctors there say the problem has more to do with society than science. Shaikh Azizur Rahman reports from Kolkata.
Video

Video Scientists Unlock Mystery of Bird Flocks

How can flocks of birds, schools of fish or herds of antelope suddenly change direction -- all the individuals adjusting their movement in concert, at seemingly the same time? British researchers now have some insights into this behavior, which has puzzled scientists for a long time. VOA's George Putic has more.

AppleAndroid

World Currencies

EUR
USD
0.7537
JPY
USD
103.79
GBP
USD
0.6032
CAD
USD
1.0957
INR
USD
60.522

Rates may not be current.