Turkish Central Bank hikes interest rates

Turkey has means to curtail currency shifts President

Earlier in the day, Turkey's central bank hiked the late liquidity window lending rate to 16.5 percent from 13.5 percent as part of its efforts to stem the decline of Turkish lira against the US dollar, which hit another historical low to 4.93 on Wednesday.

The central bank, which uses a corridor of rates as part of its monetary policy, said it had increased the upper rate to 16.5% from 13.5%.

"Accordingly, the committee made a decision to implement a strong monetary tightening to support price stability", it added, according to BBC.

Despite posting an impressive 7.4-percent growth in 2017, the highest in G20 member countries, Turkey's economy has started showing signs of overheating, according to specialists.

The lira has lost more than 20 percent of its value against the dollar since the beginning of this year.

"A tight stance in monetary policy will be maintained decisively until the inflation outlook displays a significant improvement", it added.

The bank took decisive action to put a floor under the cratering lira currency and win back investor confidence shaken by interventions from President Tayyip Erdogan.

The sharp fall in the currency's value has come at a hugely sensitive time as Turkey heads to June 24 presidential and parliamentary elections where Erdogan is seeking a new mandate and a thumping parliamentary majority.

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Turkey's currency lira has fallen to an all-time low against the US dollar amid fears of economic instability as the country heads toward crucial elections next month.

Its performance has been even worse than the Argentinian peso which has also suffered severe turbulence over the last month.

"At long last. If they had listened to the markets weeks ago and done this back then they may have been able to get away with a lower rate hike", said Timothy Ash, emerging markets debt strategist at BlueBay Asset Management. His remarks for potential interference in the Central Bank's independent policy-making mechanism produced a backlash in global markets and sent lira plunging to historic lows.

The situation had not been helped by Erdogan himself who has consistently pressured the central bank to keep rates down to boost growth.

"Interest rates are the mother and father of all evil", said Erdogan, mentioning also a "foreign conspiracy" to harm Turkey's economy ahead of elections.

An AFP photographer in Istanbul's Grand Bazaar said currency traders were refusing to sell dollars to limit their own losses amid the currency slide.

He appealed to Turks not to favour foreign currencies over the lira, and said authorities "will definitely take measures to lower inflation and the current account deficit in a very different way after the elections".

The last time the central bank raised interest rates at an emergency meeting was in January 2014, in an attempt to stop a similar selloff. "But the relief has often proved short-lived", he said.

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