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Turkish Lira Eases after Central Bank Rate Hike

Turkish Lira Eases after Central Bank Rate Hike

Turkey's central bank has raised its key interest rate to 24% in a dramatic bid to control rocketing inflation and prevent a currency crisis.

Chinese officials welcomed an invitation from U.S. Treasury Secretary Steven Mnuchin to new talks. It later shed some of those gains but was still up almost three percent in value at 6.16 to the dollar after 1330 GMT.

The lira TRYTOM=D3 rallied 3 percent to 6.15 against the dollar, having traded at 6.4176 beforehand.

Analysts fear Erdogan's influence over the central bank will cause tension after the rate hike, further escalating issues around monetary policy.

The bank had not touched interest rates since early June with markets concerned that the policy of the nominally independent bank is being dictated by Erdogan. -China trade stand-off and ahead of major central bank meetings on Thursday, including emerging market trouble spot Turkey.

Turkish lira implied volatility gauges fell to their lowest levels in more than a month, as sentiment continued to improve.

Recent currency fluctuations in Turkey have political reasons, President Recep Tayyip Erdoğan said Friday, describing the surge in US dollar/Turkish lira rate in August as an "evidence of an attempted economic assassination".

After rising as high as 6.1442 to the dollar, the lira eased to 6.1025 on Friday.

Washington has imposed sanctions on two Cabinet ministers for not releasing pastor Andrew Brunson, who faces terrorism-related charges in Turkey.

In his speech on Friday, Erdogan said Turkey would see the result of central bank's independence after it lifted interest rates, adding that his patience with interest rates had limits. In August of previous year, one dollar bought Three.5 lira; at some level of the last month it fetched more than 6.

"The bold decision (by Turkey's central bank) reduces the risk that a full-scale financial crisis may unfold", wrote analysts at Rabobank in a note to clients.

One of Erdogan's advisors mainly known for his outlandish statements, Yigit Bulut, was removed from the board, while new members included Rifat Hisarciklioglu, the president of the Union of Chambers and Commodity Exchanges of Turkey (TOBB).

Erdogan has also announced plans for a 45-kilometre (28 mile) canal that would turn the western side of Istanbul into an island and is estimated to cost around $16 billion.

The pan-European STOXX 600 index gained 0.28 percent.

"Turkish corporates live highly indebted in worldwide replace, which manner that the local forex fee of their debt repayments has spiked over the outdated couple of weeks", stated the EIU's Demarais.

"Hiking today does get Turkey on the slow road to recovering some monetary policy credibility, and that is critical", said Aberdeen Standard Investments Head of Emerging Market Debt Brett Diment. Japan's Nikkei stock index was 1.2 percent higher.

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