Turkish central bank raises rates sharply, boosts lira | Reuters
Meet Lira, the Turkish Currency That is Pulling Indian Rupee Down to hit an all- time low of per dollar on Tuesday, as concerns about Turkey's economic woes persisted. He has urged the central bank to not raise interest rates. . Hyderabad Police Appoints Women-Patrolling Force To Curb Crime. Turkey's central bank raised its benchmark rate by a hefty basis points on This boosted investors' fears that the president - who wants to see lower cop, bad cop' being played out between the Turkish authorities - with. The Turkish lira surged above 5 percent in response, although the gains subsequently "TCMB [Turkish Republic Central Bank] did show resolve in hiking the Tayyip Erdogan makes a speech during a meeting in Ankara, Turkey , Sept. sheet, and market concerns about geopolitics will remain in place.
Meet Lira, the Turkish Currency That is Pulling Indian Rupee Down - News18
One reason is that cheap borrowing rates in major economies like the U. Ultra-low interest rates in the U. That helped the economy, which booked 7 percent growth last year.
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But now the U. Federal Reserve is raising rates. That draws capital away from Turkey, weakening the currency.
And it makes it more expensive for Turkish companies to repay the foreign currency debts, raising economic concerns that can further weaken the currency. Its economy has long shown signs of overheating.
Meet Lira, the Turkish Currency That is Pulling Indian Rupee Down
The country has run a large trade and investment deficit with the rest of the world, buying more than it sells and relying on foreign investment and lending. That deficit can weigh on a currency, especially when foreign investment stops flowing in. As the currency weakens, it can make foreign investors pull their money out of Turkish stocks and bonds as their lira investments lose value.
To do that, they have to sell lira — worsening the rout.
Turkey's Central Bank Defies Erdogan, Hikes Rates
Politics has played a role, too. The lira's fall has been made worse by President Recep Tayyip Erdogan's statements on economic policy. He has urged the central bank to not raise interest rates. Rate increases are the central bank's main tool to support the currency and fight inflation, though they can slow growth.
The central bank appears to have heeded Erdogan and has not raised rates when many — including the International Monetary Fund — have urged it to. Reform of the financial system has been incomplete. For the time being, Turkey looks like a localised crisis with no significant spillover effects. It has the potential to be more serious than that. For a start, it is a relatively big country, with a population of 80 million and an economy four times as big as neighbouring Greece.
It is also currently the home to 3 million Syrian refugees, many of whom would like to be living in the European Union. Many emerging market economies borrowed heavily in dollars when American interest rates were at rock-bottom levels.
The result was credit-driven growth, which starts to look fragile when — as now — the Federal Reserve is raising interest rates and the dollar is strengthening. Turkey, though, is in a class of its own. An economic and financial crisis that has been brewing all year has finally come to a head. The Turkish lira surged above 5 percent in response, although the gains subsequently were pared back. International investors broadly welcomed the move.
The central bank had drawn sharp criticism for failing to substantially raise interest rates to rein in double-digit inflation and an ailing currency. The lira had fallen by more than 40 percent this year. The rate hike is an apparent rebuke to Turkish President Recep Tayyip Erdogan, who has been opposed to such a move.
Only hours before the central bank decision, Erdogan again voiced his opposition to increasing interest rates.Fitch Worried Over Turkish Central Bank's Independence as Lira Slumps
The Turkish president reiterated his stance of challenging orthodox economic thinking, arguing that inflation is caused by high rates, although that runs contrary to conventional economic theory.
Erdogan also issued a presidential decree banning all businesses and leasing and rental agreements from using foreign currency denominations. The central bank indicated further rate hikes could be in the offing.