Turkish interest rates: Lira surges after rate hike

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• Turkey’s central bank raised the interest rate from 17.75% to
  24% on Thursday, beating market forecasts.
• Earlier in the day, Turkish President Erdogan stoked fears
  that the central bank’s independence could be under threat by
  calling for low interest rates.
• The lira is surging against the dollar as a result, with a
  swing of 4% from negative to positive.

LONDON — The Turkish
lira is surging against the dollar on Thursday after the
country’s central bank defied the wishes of the president and
hiked interest rates.

The Central Bank of the Republic of Turkey (CBRT) raised its
benchmark rate of interest from 17.75% to 24%. That beat the
market consensus of a hike to 22%, and calmed investor fears that
the CBRT wouldn’t raise rates at all.

Analysts have been calling for the central bank to raise rates by
as much as 10% to combat runaway inflation in Turkey, which is
currently running at around 16%.

Earlier in the day, Turkish President Recep Erdogan said he
believed Turkey should have low interest rates and
called them a “tool of exploitation.” Erdogan is
ideologically opposed to interest rates and has called them
“evil.”

The lira has come under sustained pressure over the summer, in
part because of fears that Erdogan is exerting greater influence
over the CBRT, which is meant to be independent.

Erdogan’s comments on Thursday sent the dollar spiking by as much
as 3% against the lira. However, the CBRT’s decision dramatically
reversed this, with the dollar falling by as much as 5% against
the lira at one point.

Here’s how the dollar looks against the lira roughly ten minutes
after the CBRT’s decision (remember that when the lira
appreciates, the dollar falls):

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