Jun 07 2018

Turkey raises rates more than expected; lira surges

Turkey’s central bank raised its benchmark interest rate by 125 basis points, more than economists expected. The lira surged against the dollar.

The one-week repo rate increased to 17.75 percent from 16.5 percent, the central bank said on its website on Thursday.

The lira climbed 2.1 percent to 4.46 per dollar at 2:08 p.m. in Istanbul.

Economists and investors have been calling on the bank to do more to tackle inflation after CPI accelerated to 12.2 percent in May from 10.9 percent in April. Most economists had expected the bank to leave rates unchanged, while others predicted a hike of 50-100 basis points.

"Finally they are doing the right thing," said Tim Ash, senior strategist for emerging markets at Blue Bay Asset Management in London. "Full credit to them, they get it. Hiking against strong political pressure from the top."

The rate hike comes after a 300 basis-point increase in May, taken in an emergency meeting after the lira sank to a record low of 4.92 per dollar. It also precedes presidential and parliamentary elections on June 24.

President Recep Tayyip Erdogan has called for lower interest rates, claiming they are inflationary and hurt the economy.