independent

Friday 18 April 2014

Turkey raises I-rate to boost lira

Turkey's central bank governor Erdem Basci speaks in Ankara before the bank announced it was raising the key interest rate (AP)

Turkey's central bank has sharply raised its key interest rate from 7.75 to 12% to try to stave off inflation and support the ailing national currency.

The decision was taken at an emergency meeting called yesterday by the central bank after the lira hit a record low.

The central bank said its goal was to lower the country's inflation rate, which reached 7.4% in December. In a statement, it forecast that inflation would fall to its 5% target by mid-2015. The central bank said it would keep rates high until there were signs inflation was declining.

Neil Shearing, an economist at the London-based Capital Economics, said the rate boost should help restore credibility to the central bank's goal of reducing inflation and stabilising its financial markets.

"This is clearly good news," he said.

In addition to raising its overnight lending rate to 12%, the central bank raised the rate on one-week borrowing from 4.5 to 10%. The rate on its late liquidity window was raised to 15% from 10.25%.

The lira has been dropping amid concerns that a bribery scandal might destabilise the government. Like currencies in other emerging markets, the lira has also been battered by concerns over a slowdown in global growth and the potential impact of the withdrawal of the Federal Reserve's stimulus in the United States.

A higher interest rate is intended to draw investor money into Turkey, which could boost the lira's value.

AP

Press Association

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