Turkey's central bank hikes key interest rate to 24 percent

The Monetary Policy Committee led by Governor Murat Cetinkaya on Thursday increased the one-week repo rate by 625 basis points to 24 per cent, more than the median estimate in a Bloomberg survey that called for a hike of 325 basis points.

There had been indications from the bank that it would raise rates after inflation came in at almost 18 percent in August. In the other direction, with the economy heading into recession, lower rates would help inject growth stimuli. "Erdogan´s speech. was meant to put distance between himself and the (bank´s) decision". But there are also private banks, they are acting according to what? "How can the private sector invest in such high interest rates?" he asked, adding that such margins were only made by drugs dealers.

Erdogan, a self-described "enemy of interest rates", assumed new powers under an executive presidential system following an election in June and has appointed his son-in-law as finance minister. "If you say "inflation is the cause, the rate is the result", you do not know this business, friend", he added.

Ignoring calls for restraint from President Recep Tayyip Erdoğan, the bank raised its main short-term rate from 17.5% following weeks of pressure from worldwide investors. "There has been no change in my sensitivities on the issue of interest rates". The depreciation has fueled higher import costs, contributing to an inflation rate that is more than three times the central bank's target, and many investors are calling for a large increase in borrowing costs to put an end to the rout.

The lira had weakened earlier on Thursday before the central bank decision as Erdogan's fierce criticism of the central bank and high interest raised doubts in investors' minds about how much the bank might tighten policy.

The lira has lost 40 percent of its value against the United States dollar this year over concerns about Mr Erdogan's influence and a diplomatic spat between Ankara and Washington but firmed to 6.01 following the interest rate decision, from more than 6.4176 beforehand.

"They act according to the Central Bank's decisions and there are now rates as high as 50 percent in practice", Erdoğan said, underlining that such sharp profits could only be gained through narcotics.

A growing crisis became acute earlier this year following the detention of an American pastor on espionage and terror-related charges, which prompted Donal Trump to double the import tariffs on Turkish steel and aluminium. This as inflation was up to nearly 18 percent in August, its highest since September 2003 - the year Erdogan first took power as prime minister.

In a series of steps to cushion the fall of lira, Turkey has limited derivative transactions, lowered leverage ratios in trading, and required Turkish exporters to convert the bulk of their overseas revenue into lira. "The lira crisis seems to be far from over".