Ankara (AFP) – The Turkish central bank on Thursday hiked interest rates for the second time in two weeks, prompting the lira to rally strongly with elections on the horizon.
The 125 basis point (bps) headline interest rate hike comes after the bank raised its emergency rate by 300 bps on May 23.
On Thursday the bank said it would raise the one-week repo rate to 17.75 percent from 16.5 percent, after a monetary policy committee (MPC) meeting.
The one-week repo rate has been the bank’s policy rate since June 1, after a long-awaited overhaul of its interest rates.
The lira surged after the bank’s announcement at 1100 GMT, gaining 1.7 percent against the dollar to reach 4.48 after previous record lows last month.
Before the bank’s move, the lira was at 4.58 against the greenback. Since January, the lira has lost over 18 percent against the dollar and over six percent in the past month.
The hikes come despite repeated calls for lower interest rates by President Recep Tayyip Erdogan, who has called interest rates the “mother and father of all evil”.
The bank’s decision to raise rates was hoped for by the markets after the inflation rate jumped in May from 10.85 percent to 12.15 percent from the same period last year.
The bank said in a statement that the “tight stance” in monetary policy would be maintained until “inflation outlook displays significant improvement”.
“If needed, further monetary tightening will be delivered,” the bank added.
Timothy Ash, senior emerging markets sovereign strategist at BlueBay Asset Management, said the decision “should help improve sentiment, and stabilise the market a bit into the elections”.
Turks will vote in parliamentary and presidential elections on June 24 in a surprisingly tight contest, with Erdogan seeking a second mandate as president.