Turkish lira surges after central bank delivers on rate hike expectations astoundingly

Turkish lira surges after central bank delivers on rate hike expectations astoundingly

Turkish lira surges after central bank delivers on rate hike expectations astoundingly

"It is pleasing to see common sense prevail", said Aberdeen Standard Investments Head of Emerging Market Debt, Brett Diment.

The central bank's interest rate hike, which surprised investors with its magnitude, comes amid growing concerns that Erdoğan is pursuing policies that will eventually bankrupt the country.

"Deterioration in the pricing behaviour continues to pose upside risks on the inflation outlook, despite weaker domestic demand conditions", the bank added.

"Erdogan's comments clearly show that he does not support this and it becomes much more hard, if not impossible, for the Turkish central bank to tighten enough to stabilize the lira and get inflation under control", Esther Reichelt, a forex strategist at Commerzbank in Frankfurt, told DW.

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The lira rose after the decision and was trading 5.3 per cent higher at 6.0254 per dollar at 2:04 p.m.in Istanbul.

The lira has lost 40 percent of its value against the U.S. dollar this year over concerns about Mr Erdogan's influence and a diplomatic spat between Ankara and Washington but firmed to 6.01 following the interest rate decision, from more than 6.4176 beforehand. Erdoğan has always been pressuring the bank to keep interest rates low to encourage economic growth. The independence of monetary policy has been in doubt since Erdogan pledged in his election campaign this year to take on a greater role to bring interest rates lower. "If you say "inflation is the cause, the rate is the result", you do not know this business, friend", he added.

"Great decision - made all the more hard by the huge pressure on the central bank from Erdogan", said Bluebay Asset Management LLC strategist Tim Ash.

Erdogan past year said the fund needed a "reorganisation" after the first chairman Mehmet Bostan was removed from his post in September 2017.

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Turkish President Tayyip Erdogan has appointed himself chairman of the country's sovereign wealth fund and completely changed its board, naming Finance Minister Berat Albayrak as his deputy, the country's Official Gazette said on Wednesday.

Phoenix Kalen at Societe Generale said the market was both pleased and confused by the bank's move.

He said Turkey also needed to resolve a dispute with the United States, which helped drive the lira to a record low of 7.24 against the dollar a month ago, and rebalance the economy away from big infrastructure projects and consumer spending.

There had been indications from the bank that it would raise rates after inflation came in at almost 18 percent in August. Subsequently, the lira lost about 25 per cent of its value while authorities have taken a series of steps to support it, with the bank taking liquidity measures and the banking watchdog limiting derivative transactions.

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