Turkish bank may intervene should lira weaken

Turkey’s central bank may hike interest rates should the lira depreciate beyond 4 per dollar, according to Erdal Sağlam, a columnist for Hurriyet newspaper.

The central bank could even call an emergency meeting to raise interest rates, Sağlam said, citing bankers he didn’t identify. The currency traded at 3.93 per dollar on Tuesday, near a record low at 3.98.

But at the same time, the government is seeking to lower interest rates in order to stimulate economic growth, creating a predicament for the central bank, he said.

Such talk of an emergency meeting may reach a crescendo should the U.S. Federal Reserve decide to increase its own interest rates this week, because the lira is decoupling from its peers in emerging markets and could weaken quickly, he said.

“To summarize, debates on interest rates are taking an interesting turn,” Sağlam said. “If the local currency keeps depreciating, the markets will expect higher interest rates but the government at the same time will try to lower the interest rates.

“We know that the central bank management is aware that its options are limited. We also know that it experienced in the past that the pressure for lower interest rates in fact resulted in much higher interest rates. Let’s see what happens.”