Turkey: Lira tumbles after central bank unexpectedly holds rates

Turkish
President Erdogan greets his supporters during a ceremony in
Istanbul
Thomson
Reuters

• The
  Turkish lira is down 3.38% at 4.8983 per dollar after
  Turkey’s central bank unexpectedly held its key interest rate
  at 17.75% on Tuesday.
• Economists were expecting a 100-basis-point
  hike.
• The decision comes just a month after the reelection of
  President Recep Tayyip Erdogan won reelection.
• 
  Watch the lira trade in real time here.

The
Turkish lira tumbled on Tuesday after the country’s central
bank unexpectedly held its key interest rate. It’s currently
trading down 3.38% at 4.8983 per dollar, and is threatening its
record low of 4.9743.

The Central Bank of the Republic of Turkey left its benchmark
interest rate unchanged at 17.75%, shocking economists surveyed
by Bloomberg who were anticipating a 100 basis point hike.

“Recently released data indicate a more significant
rebalancing trend in the economic activity,”
the bank’s statement said. “External demand maintains its
strength, while signs of deceleration in domestic demand become
more visible.”

Turkey’s central bank has been hiking rates sharply in
recent months in an effort to stem its sliding currency. In May,
it announced an
emergency 300-basis-point hike as the lira touched a
then record low. Its one-week repo rate was at 8% as recently as
April. 

Tuesday’s decision comes just one month after President
Recep Tayyip Erdogan won reelection. He is
a self-proclaimed  “enemy” of interest rates, and
said in May that if he won reelection he would take more
responsibility for Turkey’s economy. 

“A no-change or a ‘marginal’ hike of 25-50bp would be Lira
negative, and could prompt front-end rates to price in a higher
probability of emergency tightening at some point in the not too
distant future,” a team of Nomura analysts led by Craig Chan
wrote in a recent note to clients.

The Turkish lira has plunged 29.5% this year versus the US
dollar. 

Markets
Insider