Turkey: Turkish lira rises after interest rate adjustment

The Turkish Federal Reserve wants to change its key interest rate and has thus strengthened its currency. President Erdoğan had previously called for exchange in Lira.

Turkey: Turkish lira rises after interest rate adjustment

In meantime, Turkish currency has clearly gained in value. The lira rose to US dollars and euros by more than three percent. The Turkish central bank had previously announced that it would simplify its hirto unclear monetary policy by changing its central interest rate.

Instead of last used late lending rate, former main interest rate for week-long central bank money is to be used again. At same time, it increases from 8.0 to 16.5 percent. This corresponds to level of last central late lending rate.

The lira had lost value last week and had fallen to ever new lows. In middle of last week, central bank had even supported currency with a notzins increase. However, action showed no lasting effect. Experts criticised that increase had come too late and was too low.

Erdoğan wants stronger political control

"It is a step in right direction, albeit rar a symbolic one," said Thu Lan Nguyen from Commerzbank. "Wher central bank will restore its credibility, but it is on a different sheet and should depend above all on outcome of elections."

Turkish President Recep Tayyip Erdoğan had previously announced that he would like to strengn Government's control over monetary policy after elections in one month. This has caused unrest among investors, and independence of central bank is also doubtful.

According to experts, rising interest rates in United States are also responsible for strong decline in lira. They are particularly critical for countries which, like Turkey, have high liabilities abroad or in foreign currencies. In addition, re is high inflation.

According to current economic doctrine, central bank should actually react with interest rate increases, but Erdoğan is an opponent of high interest rates. The Turkish president does not see m as a remedy, but a reason for a high devaluation of money. At weekend, Erdoğan had called on population to exchange currency in lira to halt decline in prices.

Date Of Update: 29 May 2018, 12:02

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