Turkish Lira Surges After Interest Rate Hike

The Turkish lira jumped sharply today after the Turkish central bank performed an emergency interest rate hike following data that showed accelerating inflation.

The Central Bank of the Republic of Turkey raised its policy rate from 16.5% to 17.75% at today’s emergency meeting. The announcement came following the inflation report few day before that showed a surge of annual inflation to 12.15% in May from 10.85% the month before. Indeed, the central bank explained its decision by inflationary risks:

Despite the mild outlook for demand conditions, elevated levels of inflation and inflation expectations continue to pose risks on the pricing behavior. Accordingly, the Committee decided to further strengthen the monetary tightening to support price stability.

Markets were dissatisfied with Turkey’s central bank lately, thinking that it reacts too slowly to changes in the economic environment. Additionally, investors were concerned that President Recep Tayyip Erdogan, who is a self-proclaimed enemy of interest rates, has too much influence on the bank. As a result, the lira tumbled more than 17% this year.

USD/TRY dropped from 4.5413 to 4.4688 as of 11:48 GMT today.

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