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Turkish central bank raises key interest rate drastically

2020-11-20T10:45:52.025Z


The lira crisis threatens to eat up the wealth of the Turkish middle class - the central bank is finally reacting.


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Worker in Istanbul, Turkish flag (archive image)

Photo: Burak Kara / Getty Images

Turkey is carrying out the course correction in monetary policy urgently advised by experts: The central bank has responded to the high inflation and the recent fall in the value of the lira with an unusually strong interest rate hike.

The central bank announced on Thursday in Ankara that the key interest rate will be raised by 4.75 percentage points to 15 percent.

To put it into perspective: The key interest rate in the euro area is currently 0 percent, in the USA it is only slightly above it.

Nevertheless, this rate hike by the Turkish central bank was expected, and even demanded, on the financial markets.

The reason for this is the considerable currency turbulence in which the Turkish lira was last.

In the past few weeks it became known that the government and central bank had tried to sell more than $ 100 billion in currency reserves to stabilize the lira - but were unsuccessful.

As a result, there were far-reaching personnel consequences: Finance Minister Berat Albayrak - President Recep Tayyip Erdoğan's son-in-law - gave up his office, and the management of the central bank was reassigned.

Years of economic overheating

Even more important, however, was the signal that President Erdoğan himself gave: For years he has been taking the rather unorthodox view that the high key interest rate is actually responsible for inflation and currency depreciation (in fact, it is exactly the opposite).

In mid-November, however, he promised a clear correction of his course.

Immediately after taking office two weeks ago, the new central bank governor Naci Agbal gave clear signals to signal the interest rate hike.

According to the head of the central bank, the Turkish lira has already stabilized after reaching record lows in trading with the US dollar and the euro.

After the rate hike, the lira picked up on the recent recovery and gained significantly.

For years, economists have been warning that Erdoğan and the central bank that is dependent on him risked the economy overheating and the country's financial stability by setting key interest rates too low.

The rate hike was unanimously welcomed by analysts and investors.

The lira gained around two percent in value compared to the dollar.

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beb / dpa

Source: spiegel

All business articles on 2020-11-20

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