Turkey central bank raises benchmark rate to 24%; lira rallies

Erdogan appoints himself chairman of Turkey's sovereign wealth fund

The lira firmed to 6.01 against the dollar following the decision, from more than 6.4176 beforehand.

It stood at 6.13 to the dollar at 0447 GMT.

The decision to raise interest rates appears to underline the bank's independence, but Erdogan's preceding speech denouncing interest will loom over the markets, sowing worry that he will soon exert his already outsized influence on the country's economy once more.

Neil Wilson, chief market analyst at Markets.com said: "This was a definite statement from policymakers, but the risk now is that the market tries to test the central bank's resolve: the horse may have already bolted".

"However, one swallow doesn't make a summer", she warned.

The end result of Thursday's show was a rally in the ragged lira that cut the cost of dollars by more than 4% - prompting Turkish bargain-hunters to snap up about $1 billion in an hour.

The European Central Bank kept its rates deep in negative territory as expected, but it continues to move closer to normalizing policy.

There had been indications from the bank that it would raise rates after inflation came in at almost 18 percent in August.

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"Erdogan's comments clearly show that he does not support this and it becomes much more hard, if not impossible, for the Turkish central bank to tighten enough to stabilize the lira and get inflation under control", Esther Reichelt, a forex strategist at Commerzbank in Frankfurt, told DW. For now though, this should provide the lira a much needed relief in the short-term.

"Turkey needs structural reforms to increase productivity, to decrease its dependence on short-term portfolio flows and to decrease the rigidness in the labour market".

The central bank surprised investors by not raising rates when it last met in July.

Inflation in Turkey is now nearly 20 percent and the crisis there has spread to some other emerging market countries with sizable current account deficits.

Now Erdogan, long derided for his contrarian view that cutting rates slows inflation, is suddenly being lauded for allowing monetary authorities to follow orthodox prescriptions for common ills - all while enhancing his reputation as the defender of small businesses struggling with the rising price of money.

Anthony Skinner, director of Middle East and North Africa at Verisk Maplecroft, told AFP he believed the hike had already been agreed.

The bank implemented what economists described as a hidden interest rate hike in mid-August, forcing banks to borrow at the higher 19.25 percent through the overnight lending facility.

The bank later said on Twitter that funding would be provided via the policy rate, the one week repo auction rate, instead of through overnight lending from September 14.

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