Trade hopes lift stocks; emerging markets get boost from Turkey rate hike

14 September, 2018, 19:15 | Author: Eric Barnett
  • USDTRY May Hit Record High on Turkish Central Bank Inaction

Earlier in the day, Erdogan had launched a blistering attack on the central bank, causing a sharp fall in the value of the lira just ahead of the crucial rate decision.

The lira rose after the decision and was trading 3.1 per cent higher at 6.1604 per dollar at 2:23 p.m.in Istanbul.

The lira has traded in a narrow range since Monday after the central bank last week signaled potential action to stem consumer-price growth that has accelerated to the fastest in 15 years.

The Turkish lira has steadily lost value in recent months.

The bank´s intervention was the latest aggressive rate hike to calm economic turbulence in an emerging market after the Argentinian central bank´s recent hike from 45 to 60 percent on August 30.

Erdogan called on Turkey's exporters to take advantage of the current levels in foreign exchange rates to increase the volume of exports, and production and employment as well.

The bank described the hike as a "strong monetary tightening to support price stability". The lira surged against the dollar to near 6.00 on the announcement from 6.40 levels earlier. In a bid to shore up the Turkish lira, Erdoğan's government issued a decree on Thursday banning the use of foreign currency in the sale and renting of property and the leasing of vehicles.

Turkish President Recep Tayyip Erdogan has accused Washington of waging an economic war against his country.

Phoenix Kalen at Societe Generale said the market was both pleased and confused by the bank's move.


There had been indications from the bank that it would raise rates after inflation came in at almost 18 per cent in August, according to official data last week.

It said the policy would be "maintained decisively until inflation outlook displays a significant improvement".

But Neuteboom of ABN Amro said much more was needed for Turkey to turn around "the negative spiral" the economy is in.

Now Erdogan, long derided for his contrarian view that cutting rates slows inflation, is suddenly being lauded for allowing monetary authorities to follow orthodox prescriptions for common ills - all while enhancing his reputation as the defender of small businesses struggling with the rising price of money.

The embattled currency has fallen by 40% this year amid a lack of interest rate hikes to control inflation.

The bank later said funding would be provided via the policy rate, the one week repo auction rate, instead of through overnight lending from September 14.

"By saying the central bank is independent while criticizing it for misguided policies, Erdogan is pointing the finger of blame at the central bank".

The warning came after his USA counterpart, Donald Trump, escalated a feud by doubling tariffs on metals imports.

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