The Turkish lira has been in a freefall in recent months, losing nearly 27% of its value against the U.S. dollar this year. This is due to a number of factors, including high inflation, political uncertainty, and concerns about the central bank’s independence.
Rate Hike
On Thursday, Turkey’s central bank raised its key rate by a hefty 650 basis points to 15%. This was the largest rate hike in the bank’s history, and it was seen as a sign that the bank was finally taking steps to address the lira’s depreciation.
However, the rate hike fell short of market expectations. The median estimate in a Reuters poll had been for rates to rise to 21%. This suggests that the central bank may be limited in its ability to raise rates aggressively, due to pressure from President Recep Tayyip Erdogan.
Impact
The rate hike had a limited impact on the lira on Thursday, as it had already fallen to a record low before the announcement. However, the lira weakened further on Friday, falling as much as 2.8%.
Analysts said the smaller rate hike suggested that Erkan might have limited room to aggressively tackle inflation under Erdogan’s watch. They said that the central bank would need to raise rates further in order to stabilize the lira and bring inflation under control.
Implications
The lira’s depreciation has had a number of negative implications for the Turkish economy. It has made imports more expensive, which has led to higher inflation. It has also made it more difficult for Turkish businesses to borrow money, which has dampened investment and growth.
The rate hike is a step in the right direction, but it is not enough to address the lira’s depreciation. The central bank will need to raise rates further and take other measures to stabilize the currency. If it does not, the lira’s depreciation could have a devastating impact on the Turkish economy.
The Turkish lira hit fresh record lows on Friday after the central bank’s rate hike fell short of market expectations. The lira is likely to remain under pressure in the coming months, as the central bank faces a difficult balancing act between taming inflation and not upsetting President Erdogan.
