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Bowing to market pressure, Turkey's Central Bank hikes rates

The Turkish currency's nosedive continues, with the nation's Central Bank hamstrung by President Recep Tayyip Erdogan's resistance to intervention.

Turkey is a nation transfixed by digital currency rate boards. As the Turkish lira continued its accelerated slide against the dollar, currency traders at the open-outcry exchange outside the Grand Bazaar in Istanbul paused business today. Economists warn of a full-blown currency crunch, yet the Central Bank has barely blinked. In what some analysts shrugged off as too little, too late, the Central Bank sharply increased one of its primary lending rates — the late liquidity window — from 13.5% to 16.5%. The lira briefly rallied, rising to 4.59 against the dollar, only to tumble anew to 4.67. It remains unclear whether President Recep Tayyip Erdogan, who clings to the unusual theory that raising interest rates will increase inflation, gave his blessing to the rate hike or not. 

The lira has been in free fall ever since Erdogan's May 14 interview with Bloomberg Television. “Of course our Central Bank is independent,” he said. “But the Central Bank can’t take this independence and set aside signals given by the president.” The lira hasn’t stopped falling ever since, adding pressure to a bulging current account deficit and dollar-denominated corporate debt. Erdogan’s unremitting assault on democratic checks and balances twinned with the US Federal Reserve’s rate hikes haven’t helped.

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