The Turkish Lira (amusingly abbreviated to TRY) has rallied somewhat against the US Dollar and other major currencies following an interest rate increase. The central bank took action to stop the Lira from further losses against the Dollar by rising interest rates from 13.5% to 16.5%. The move saw the Dollar fall back from a peak value of 4.901TRY (yesterday) to trade at 4.63TRY currently.
The Turkish Lira has fallen by more than 20% against the Dollar this year (of course, the Dollar has strengthened recently against all major currencies). It has been on a fairly stable downwards trajectory since the autumn of 2013 when 1$ would buy you 2TRY.
The latest reading of inflation in Turkey comes in at 10.85%. It is likely that the latest rate rise will help to ease inflation for goods, but it will push up mortgage and loan repayment costs and have an effect on home rental rates over time. Turkey has been dogged by high inflation with an average figure of 35.22% (1965 – 2018) with an all-time high of 138.7% (May 1980) and a low of -4.01% (June 1968).
Announcing the rate rise, the central bank noted: "Current elevated levels of inflation and inflation expectations continue to pose risks on the pricing behaviour. Accordingly, the committee decided to implement a strong monetary tightening to support price stability."
The Turkish president, Recep Tayyip Erdogan, has called a snap general election for June and is known to favour a more interventionist policy towards the central bank. However, he Tweeted his support for the bank’s latest move: "The central bank governor and members of the monetary policy committee have my full backing in doing what's necessary to stem the slide in lira and achieve price stability. None of Turkey's macroeconomic problems insurmountable. We've fixed problems in the past, we can do it again."
Ironically, some analysts believe that part of the weakness of the Lira is due to fears that government intends to play a more interventionalist role in the affairs of the central bank. The snap election is due to be held on 24th June.