Turkish lira weakens to pre-rate hike levels

The Turkish lira fell, erasing the gains it made after a central bank rate hike last week.

The lira dropped by 2 percent to 7.7862 per dollar in Istanbul, declining for the second day.

Turkey’s central bank increased its benchmark interest rate by 4.75 percentage points to 15 percent on Thursday, matching the expectations of economists. Monetary policymakers said they would only lend to banks via that single rate going forward, abandoning a so-called interest rate corridor.

The Turkish central bank hiked rates after the lira slumped to a record low of 8.58 per dollar earlier this month, prompting President Recep Tayyip Erdoğan to sack the bank’s governor and replace him with former finance minister Naci Ağbal. The lira has lost almost 25 percent of its value this year.

But the effective cost of borrowing for banks has changed little since the rates decision. Banks’ average funding costs had stood at about 14.75 percent previously as they borrowed from the central bank at multiple rates of interest.

Turkish savers, who have sold tens of billions of liras for dollars this year to protect their capital, are still getting scant returns for placing their money in lira deposit accounts of the country’s largest banks.

Returns offered by top non-government banks Akbank, Yapı Kredi and İşbank on 32-day deposits of 10,000 liras range from 9.75 percent to 10.75 percent, according to banking product comparison website enuygun.com. Government-run Halkbank is offering savers a rate of 14.25 percent. Annual inflation in the country stands at 11.9 percent.

About 57 percent of all bank deposits in Turkey are in foreign currency compared with 50 percent in July.  

The central bank is next due to meet on interest rates on Dec. 24.