Investing.com – The Turkish lira, which was already underneath heavy stress, continued its slide unabated after the 650 foundation level rate of interest hike by the central financial institution in Ankara. The foreign money hit new file lows in opposition to the euro and the greenback, leaving traders and economists alike involved.

The just lately gained 2.27% to succeed in TRY 24.10, whereas the rose 2.32% to TRY 24.49. On the similar time, the recorded a restoration and approached its file highs once more.

The Turkish central financial institution’s determination to lift its key fee by a whopping 650 foundation factors to was seen as a constructive step however fell in need of economists’ expectations. They’d anticipated a fee hike to 21% to help the lira and regain market confidence. In its accompanying financial coverage assertion, the central financial institution hinted at additional fee hikes.

Liam Peach, senior rising markets economist, commented: “Additional hikes are wanted on the coming conferences to deal with Turkey’s inflation drawback. The communications counsel that that is coming, regardless that tightening shall be extra gradual than had been anticipated as few weeks in the past. We nonetheless assume that charges will rise to 25-30% later this 12 months.”

The rise within the coverage fee marks the start of a brand new financial coverage period underneath the management of Hafize Gaye Erkan. As the brand new central financial institution chief, she was appointed by President Erdoğan to pursue a extra rational financial coverage and produce excessive underneath management. Beforehand, Erdoğan had thought-about excessive rates of interest as an enemy and advocated looser financial coverage.

The central financial institution’s determination has drawn controversy from varied quarters. Some economists welcome the transfer as a crucial step to regain investor confidence and curb inflation. Others see the choice as inadequate to resolve the nation’s financial issues and proceed to name for a stronger improve in rates of interest.

Excessive inflation and the weak lira proceed to pose main challenges for the Turkish financial system. Rising costs are weighing on shoppers and companies and decreasing buying energy. As well as, the weak foreign money makes it tough to import items and will increase the nation’s debt burden.

(Translated from German)