Turkey hikes rates to rescue lira

The Turkihs central bank said the one-week repo auction rate would go from 10.25 percent to 15 percent. (AP)

• One-week repo auction rate would go from 10.25 percent to 15 percent

ANKARA: Turkey’s central bank hiked interest rates on Thursday to support its battered currency.
The regulator raised its benchmark rate to 15 percent from 10.25 during its Monetary Policy Committee (MPC) meeting.
The move is seen as a show of willingness to ensure price stability under the bank’s new governor, former Finance Minister Naci Agbal.
But analysts urged caution and warned further steps were needed.
“In the periods ahead, all factors affecting inflation will be taken into account and the tightness of monetary policy will be decisively sustained until a permanent fall in inflation is achieved,” the central bank said.
Turkey had long resisted investor calls to raise interest rates to support the tumbling lira.
But with the bank’s reserves being rapidly depleted and with the Turkish lira hitting record lows, an increase in interest rates is now seen as the only option for the country’s economy, which desperately needs  foreign investment.
Nigel Rendell, director at Medley Global Advisers in London, said markets were encouraged by the central bank’s decision to return to a conventional monetary policy.
“The CBRT (central bank) found itself in a corner, particularly given the comments last week from (President) Erdogan about reducing inflation into single digits. If the bank had disappointed the market, and only raised rates by a couple of hundred basis points, the lira would have been trading on the weaker side of eight against the dollar within minutes,” he told Arab News.