Turkey raises interest rates to strengthen weak lira, ahead of election

Turkey raises interest rates to strengthen weak lira, ahead of election
Turkey's lira rallied on Thursday as the central bank announced that interest rates would be hiked to help strengthen the flagging currency.
2 min read
07 June, 2018
Erdogan appears to be giving the central bank more space [Getty]

Turkey helped strengthen the lira on Thursday, as it raised interest rates for the second time in two weeks, giving the struggling currency a much needed boost.

Ankara's key interest rate went from 16.5 percent to 17.75 percent following a central bank meeting on Thursday, after the lira crashed to lows against the dollar this year.

The central bank has been keen on increasing interest rates to cope with the weak lira, which has lost almost 20 percent of its value against the dollar this year.

Interest rates can also help battle inflation, but also lowers growth with President Recep Tayyip Erdogan calling it the "mother and father of evils".

Despite this, Turkey's central bank has been keen to increase interest rates again with the lira at 4.57 to the dollar on Thursday.

Analysts have indicated that the increase could be a sign that Erdogan is interfering less in the central bank's affairs despite previous threats.

"Two weeks ago, the impression was that Erdogan would step in. Politicians don't want to slow the economy because of upcoming elections," Claus Vistesen, an analyst at Pantheon Macroeconomics, told AP.

The central bank said its "tight stance" on monetary policy would be maintained until the "inflation outlook displays significant improvement", which will rise to around 14 percent later this year, with 7 percent economic growth.

"If needed, further monetary tightening will be delivered," the bank said in a statement, according to AFP.

Turkey goes to the polls this month to elect the parliament and president, which Erdogan and his Justice and Development Party is hoping to sweep.

Erdogan has asked people to buy liras to help prop up the Turkish currency.