Central Bank of the Republic of Turkey

May 24, 2018

The world’s biggest currency market story earlier this week had been the accelerating dive of the Turkish lira, exacerbated by its central bank’s benign neglect of a deepening currency rout. To be sure, monetary officials were simply abiding by the substantial pressure from Turkish President Erdogan not to raise interest rates. A 275-basis point cumulative rise last year of the late liquidity window rate had been augmented by just one 75-basis point hike this year in April, and the symbolic one-week repo rate was kept at 8.0%, its level since November 2016.

The Monetary Policy Committee had not been scheduled to review the policy stance again until June 7th but today met on an emergency basis, approved a three percentage point further jump in the late liquidity window borrowing rate to 16.5%, and released a statement that promises to “continue to use all available instruments in pursuit of the price stability objective. Tight stance in monetary policy will be maintained decisively until inflation outlook displays a significant improvement.” Lifted by imported inflation due to the lira’s depreciation, consumer prices are now nearly 11% higher than a year ago, and the core inflation rate exceeds 12%. Although the lira rallied after the central bank’s announcement, all other interest rates were left unchanged, and many investors doubt that today marks a decisive end to the lira’s troubles.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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