The Central Bank of the Republic of Turkey (CBRT) announced on Thursday that it raised the benchmark interest rate (one-week repo) by 475 basis points to 15% from 10.25%. The decision was in line with market expectations, although it still generated a positive reaction in the Turkish lira as the risk was for a minor cut.
The sign of a turn to a more orthodox policy, far from the wishes of the president of Turkey, Erdogan, may also be the reason for the rise in the lira. The reason for these changes has to do with the previous crash of the Turkish currency. The USD / TRY had come to trade above 8.50 at the beginning of the month and after the decision fell to 7.52.
In the statement, the CBRT announced that the intention is to reverse the trend towards dollarization. The tool to be used will be the one-week repo rate, which becomes the only indicator of the monetary policy position.
“A transparent and tightly adjusted policy will be implemented to eliminate risks in the inflation outlook,” the central bank said. They estimate that the increase in inflation is temporary, due to the recent volatility of the exchange rate.
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