US Markets
Thursday, November 23rd, 2023 4:59 pm EDT
Key Points
- Significant Interest Rate Hike by Turkey’s Central Bank:
- Turkey’s central bank implemented a substantial increase in its key interest rate, specifically the benchmark one-week repo rate, by 500 basis points, bringing it to an unprecedented 40%.
- This hike was twice the expectations of economists, who had forecasted a more conservative 250-basis-point increase. The move represents a bold step by the Central Bank of the Republic of Turkey (CBRT).
- Efforts to Combat High Inflation and Currency Depreciation:
- The central bank’s decision is viewed as part of a broader effort to combat high inflation and address the depreciation of the Turkish lira, the national currency. Inflation in Turkey reached an alarming 61% in October, necessitating decisive actions to stabilize the economy.
- The Turkish lira was trading at 28.766 to the US dollar following the news, showing a slight strengthening against the greenback. However, the currency has faced significant challenges, being down 35% against the dollar year-to-date and losing more than 80% of its value against the greenback over the last five years.
- Recognition of Central Bank’s Seriousness in Addressing Economic Challenges:
- Timothy Ash, an emerging markets strategist at BlueBay Asset Management, stood out as one of the few experts who anticipated the 500-basis-point hike. He commended the central bank’s proactive approach, describing it as a “really impressive move” that exceeded expectations and demonstrated a commitment to orthodox monetary policy.
- The central bank’s decision follows a series of interest rate increases, indicating a determination to reverse years of skyrocketing inflation and a significantly weakened currency. Despite the potential short-term pain for the Turkish population, experts like Timothy Ash acknowledge the seriousness of the central bank in addressing economic challenges and emphasize the need to recognize their efforts.
Turkey’s central bank took a bold step on Thursday by unexpectedly raising its key interest rate, the benchmark one-week repo rate, by 500 basis points to reach a staggering 40%. This move, twice the 250-basis-point increase forecasted by economists, is viewed as a continuation of the bank’s efforts to combat high inflation and stabilize the Turkish lira, the national currency, which has been experiencing a significant decline. In October, inflation in Turkey reached an alarming 61%.
The decision to raise interest rates surprised many experts, with Timothy Ash, an emerging markets strategist at BlueBay Asset Management, standing out as one of the few who anticipated such a substantial move. Ash commended the Central Bank of the Republic of Turkey (CBRT), stating that the decision demonstrated a commitment to orthodox monetary policy and exceeded expectations. He acknowledged the central bank’s seriousness in addressing the pressing issue of inflation, emphasizing the need to recognize their efforts.
Following the announcement, the Turkish lira experienced a slight strengthening against the US dollar, trading at 28.766 lira to the dollar. The currency’s recent struggles are evident in its year-to-date depreciation of 35% against the dollar and a staggering loss of over 80% of its value against the greenback over the last five years.
This significant interest rate hike is part of a series of measures aimed at reversing years of soaring inflation and a sharply weakened currency, primarily attributed to the persistent loose monetary policies implemented by the government in Ankara. The move signals a determination to address economic challenges head-on, even if it entails short-term pain for the Turkish population. The central bank’s proactive approach is applauded by experts like Timothy Ash, who sees it as a positive step towards reining in inflation and stabilizing the national currency.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/11/23/turkeys-central-bank-hikes-interest-rate-by-500-basis-points-to-40percent-above-expectations.html
