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Turkey raises main interest rates to curb lira fall amid political tensions

30 January 2014 01:24 (UTC +04:00)

Baku-APA. Turkey' Central Bank raised on Tuesday night its overnight lending rate to 12 percent from 7.75 and its overnight borrowing rate to 8 percent from 3.5, much sharper moves than economists had forecast, APA reports quoting Xinhua.

The rate hike in Turkey had immediate impact on cooling down the rapid decline of Turkish lira against the U.S. dollar. The lira dropped to 2.19 from 2.25 before the central bank's decision. The move also improved stocks in Asian markets.

However, the dollar bounced back in Wednesday afternoon trading.

That raised the specter of political uncertainty in Turkey weighing heavily on lira's tumbling than any other reasons, analysts said.

"The causes of the exchange rate drift were mostly to be found in the current political crisis," Seyfettin Gursel, an economist, said.

"But a reaction from the Central Bank was needed because the wait-and-see policy has been risking further deepening concerns with respect to its independence as well as increasing the risk of recession," he added.

The Turkish government was rattled with a series of corruption investigations that started on Dec. 17 which led to a wave of detention and resignation of four ministers.

Thousands of police officers and over one hundred prosecutors and judges have been reassigned or demoted. The government also introduced a controversial bill to restructure the judicial council in what opposition said was an attempt to control judiciary.

Turkish Prime Minister Recep Tayyip Erdogan did not hide his displeasure with the rate hike though he underlined the independency of the bank on Tuesday night.

He said he is against an interest rate increase, stressing that in case of increase, the Central Bank Management will be responsible for its consequences.

Commenting on the rate hike, Suleyman Onatca, the chairman of the Turkish Enterprise and Business Confederation, said Turkey suffers a lot from the recent political turmoil.

Onatca underlined that if the Turkish government could have managed the corruption probe since Dec. 17 without raising tension and picking a fight with business world, the low rate hike in interest rate would have been enough to respond challenges.