Turkish Central Bank raises interest rates to 12%
2014-01-29 16:33:09
Turkish Central Bank decided last night (28 January 2014) to raise overnight lending rate from 7.5% to 12% despite strong opposition from Prime Minister Erdogan.
The Bank hopes to make Turkish Lira more attractive for foreign investors putting their funds in Turkey thus boosting the value of Turkish currency. Turkish Lira is not the only emerging market currency which saw significant slides in 2013. India, South Africa, Brazil and Russia saw their currencies rapidly lose value amidst harsh withdrawal by the US of its stimulus measures. The US quantitative easing policy, whereby US government has been buying billions of Dollars of long-term debt in an effort to stimulate its own economy, has had a negative impact on emerging economies such as the BRICS (Brazil, Russia, India, China and South Africa). India saw its currency devalue in excess of 30% against USD since summer 2013. Relatively speaking, Turkish currency has been more resilient and the Turkish Central wowed to rescue its further slide.
Prime Minister, Tayyip Erdogan, had been a strong opponent of an interest rate increase leading up to elections in March 2014, warning that a hike would hurt Turkish public by increasing the cost of borrowing. Global analysts and investors have generally perceived the move by Turkey's Central Bank as a bold yet positive one, one that indicates an independent monetary policy structure within the Central Bank. This is a particularly important perception by foreign investors due to the fact that Turkish Government, particularly Prime Minister Erdogan, have recently been criticised for being too authoritarian. The corruption claims that shook the government in the very last chapter of 2013 did not help confidence either.
"This move was all about trying to reestablish the credibility of the central bank, and I think it will go a long way to achieve that," said Timothy Ash, head of emerging markets research at Standard Bank. "Tightening against a tricky backdrop helps (Central Bank Governor Erdem Basci) win back credibility in the eyes of the market," Ash said.