Skip to comments.Turkish central bank makes massive rate hike to stem lira fall
Posted on 01/28/2014 3:00:52 PM PST by Red in Blue PA
ISTANBUL (Reuters) - Turkey's central bank hiked all of its main interest rates in dramatic fashion at an emergency policy meeting, ignoring opposition from Prime Minister Tayyip Erdogan as it battles to defend a crumbling lira.
The bank raised its overnight lending rate to 12 percent from 7.75 percent, its one-week repo rate to 10 percent from 4.5, and its overnight borrowing rate to 8 percent from 3.5, much sharper moves than economists had forecast.
The lira strengthened to 2.18 against the dollar after the decision from 2.25 late on Tuesday, having hit a record low of 2.3900 early on Monday.
Erdogan, keen to maintain economic growth ahead of an election cycle starting in two months, has been a vociferous opponent of higher borrowing costs, railing against what he describes as an "interest rate lobby" of speculators seeking to stifle growth and undermine the economy.
(Excerpt) Read more at finance.yahoo.com ...
Someone tell me how this basketcase snuck into NATO.
***...ignoring opposition from Prime Minister Tayyip Erdogan as it battles to defend a crumbling lira.***
Nice to see a central bank that shows it’s independence. Contrast this to the highly politized Fed who refuses to allow interest rates to rise to reasonable levels and keeps QE going and going like the Energizer Bunny.
One of these nations’ economy has hope. The other does not.
The Turkish Central Bank made the right move, and wisely ignored political pressure coming from PM Erdogan, who’s in campaign mode right now - there’s local elections coming up soon.
Well, the idea was to keep the Soviet Union bottled up in the Black Sea. However, Turkey has outlived its usefulness as a NATO member.
1. Stop the currency run, because the world is awash in hot money looking for a home, and
2. Make life miserable for local borrowers, as they struggle to pay the higher rates.
3. Will it spread? Of course it will.
I don't know anything about the Turkish economy, but the first and most powerful effect of a rate shock, is usually to stop all real estate deals and mergers dead in their tracks. The reason you would expect it to spread, is that it puts more pressure on all roughly equivalent, struggling currencies. Their name is legion.
On another note, wondering who will take over the mantle of Treasury bond buyer now that the Fed is stepping away? Curious of the government's next steps towards repression and control of wealth? Wait no longer. As the AP reports, President Obama will unveil a new retirement savings plan tonight that allows first-time savers to buy US Treasury bonds tax-deferred for retirement. Of course, this is not the mandatory IRA that remains somewhat inevitable but is certainly a step in the direction by which the government generously offers to help manage your retirement savings.
If you like your retirement account, you can keep your retirement account. With us.