Turkey Central Bank Rate Overhaul Boosts Lira

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Turkey's central bank said Monday it would complete moves to simplify monetary policy, sparking a strong rally in the country's currency.

"A decision has been made to finalise the simplification process regarding the operational framework of the monetary policy," the bank said in a statement on its website. 

The bank said the one-week repo rate will be the policy rate, and be equal to the current funding rate which is 16.50 percent.

The lira gained around 3 percent in value against the dollar after the bank's announcement, rallying to 4.56 against the greenback, and 5.32 against the euro.

The bank also said Monday that the overnight barrowing and lending rates will be determined at 150 basis points below/above the one-week repo rate.

The new policy will be operational from June 1, it added.

Last week, the central bank announced a sharp hike in interest rates to boost the embattled lira, raising the late liquidity window (LLW) lending rate from 13.5 percent to 16.5 percent.

The move ended days of uncertainity on the markets over whether the bank would implement a rate hike after President Recep Tayyip Erdogan, who sharply opposes rate rises, pressed for lower rates to stimulate growth.

The bank's step helped lira strengthen against the dollar at a time when Turkey braces for June 24 presidential and parliamentary elections where Erdogan is seeking a new mandate and a thumping parliamentary majority.

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