Turkey delivers big rate rise amid economic pledges
Source: Xinhua | 2020-11-20
Turkey's Central Bank (CBRT) hiked its main policy rate by 475 basis points in a keenly anticipated meeting on Thursday, following new market-friendly economic pledges made by President Recep Tayyip Erdogan.
In line with consensus expectations, the Monetary Policy Committee of the CBRT raised the policy rate from 10.25 percent to 15 percent, a statement from the CBRT said.
"Tightness of monetary policy will be decisively sustained until a permanent fall in inflation is achieved," the statement indicated, adding that "the CBRT will attain its main objective of achieving and maintaining price stability by adopting transparency, predictability and accountability principles."
The CBRT's rate decision received a very favorable reaction from analysts and markets alike.
The Turkish lira, which rallied about 10 percent last week following Erdogan's pledges, gained some new ground against the greenback (+1.6 percent). One dollar was traded Thursday afternoon at 7.58 Turkish liras in Istanbul, Turkey's financial heart.
"This is a very positive step, the new economy management has made a good start and listened to the markets," Hakan Kara, an economist, said on the Bloomberg HT television channel.
This scholar from Ankara's Bilkent University also noted that the decision to increase interest rates would also have a positive effect on Turkey's international monetary credibility.
"Excellent decision... a move to 15 percent was logical and also positive for the market," Timothy Ash, a London-based economist, said for his part on Twitter, remarking that this decision would also be favorable to rein in inflation.
The CBRT raised rates in September, but last month it held its key policy rate steady despite expectations for another policy tightening. It increased its late liquidity window rate to 14.75 percent to counter persistent double-digit inflation, which stood at 11.89 percent in October.
The lira has lost almost a quarter of its value this year and has slid by more than half since the start of 2018 when a currency crisis swept through financial markets.
Erdogan, known as a staunch opponent of raising interest rates, said Wednesday that Turkey should attach much greater importance and focus on employment, production, investment, and exports in the coming period.
"There is a new period ahead of us now. We should focus much more strongly on production, investment, employment, and exports," Erdogan said in a speech dedicated to the economy.
"Now we are at a time when even stepping up a gear is not enough, a time that requires a change of tool. We are determined to do whatever it takes," the president stressed.
Following the resignation of Treasury and Finance Minister Berat Albayrak and the dismissal of the CBRT'S head Murat Uysal, Erdogan's announcement of a new monetary and economic strategy was seen as "market-friendly" by analysts.
The Turkish leader insisted that Ankara will continue to provide all of the suitable conditions needed for both domestic and international investors. "We will see that our country stands out positively in production, employment, exports, and growth."
Turkish state banks are reported to have sold about 100 billion U.S. dollars in dollar reserves this year to support the embattled currency, depleting foreign currency reserves of the country.
At the core of the lira's losses has been concerns about the fallout of the COVID-19 pandemic on the already vulnerable national economy and its widening current account deficit and foreign-denominated debt coupled with high inflation and unemployment.
Turkey's economy has been recovering after a contraction of 9.9 percent year on year in the second quarter due to restrictions aimed at slowing the spread of the coronavirus. It had grown by 4.5 percent in the previous three months.
Industrial production jumped 8.1 percent year on year in September, according to official data, but on the other hand, Turkey's crucial tourism income has dramatically decreased amid the pandemic.
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