Overnight interest rates will go from 6,5 to 7,25 per cent, while the official rate and that of loans will remain unchanged at 4,5 and 3,5 per cent respectively. This was announced yesterday by the Central Bank of Turkey, also clarifying the objective: to stop the free fall of the local currency, the lira. "We want to support the country's prices and financial stability," reads the bank's official statement, quoted by the English-language Turkish newspaper Hurriyet Daily News.
Ankara's move comes after the sale of about 6,6 billion dollars of foreign currency reserves and while inflation is running at 8,3 percent. The overnight rates – i.e. the price paid by banks to borrow money from one day to the next – therefore seem to be the last resort. Before the official announcement, 1915 Turkish lira was needed for one dollar, after which the value dropped to 1908. A currency that is too weak puts export aid into the background and creates serious inflation problems.
The strategy follows in the footsteps of what has already been done by India, Brazil and Indonesia. Not surprisingly, the Financial Times he comments “The rate hike in Ankara reveals the dilemma of emerging markets: choosing between inflation and growth.
