Interest rates inn Turkey underwent a massive overnight hike as the central bank tries to tackle currency instability as emerging markets shed their Turkish lira deposits.
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The bank had an emergency board meeting in the middle of the night before almost doubling rates.
The overnight lending rate jumped to 12% from 7.75%, the one week repo rate to 10% from 4.5% and the overnight borrowing rate to 8% from 3.5%.
Prime Minister Recep Tayyip Erdogan pleaded with the bankers not to raise the rates because of the risk of damaging the country’s economy.
He argued that speculators were trying to line their own pockets by manipulating the currency and that the bank should stand firm in supporting the economy.
“I am against raising interest rates,” he said in an attempt to influence thinking at the central bank meeting. “I don’t have the authority to interfere with their independent deliberations.”
A high profile police anti-corruption investigation has also hindered Erdogan as police arrested dozens of high-profile suspects, including the sons of three ministers, a mayor and the chief executive of a major state bank.
But the bank put the collapsing currency and stemming inflation first and hiked the rates.
The lira rallied slightly against the US dollar after almost two weeks of daily falls.
Emerging market investors triggered the run against the lira in the face of slowing growth and rising inflation.
Many are also concerned that the United States’ pledge to phase out quantitative easing later this year and China’s falling growth will undermine the apparent strength of emerging market currencies.
Emerging market rush
The South African Rand has also felt a lot of heat alongside the Turkish lira, and is now trading around at the lowest since October 2008.
“Turkey and South Africa are vulnerable to the Federal Reserve’s tapering exercise. This is the first move in the Fed’s move back to normal business,” said Standard Bank.
The South African Reserve Bank is meeting to discuss hiking or holding interest rates, which are at the lowest for 30 years.
The rush on emerging markets is a result of investors pre-empting central bank decisions in more developed economies to start raising interest rates.
The Turkish lira was considered the strongest emerging currency, while the Rand was ranked the lowest of 24 tracked by financial data firm Bloomberg.
Emerging market currency problems have yet to spread to equity markets, with many showing slight gains.
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