Turkish central bank raises lending rate to 12%

Woman counting lira at an exchange counter Investors had been exchanging their lira for foreign currencies in recent days

Related Stories

The Turkish central bank has raised its overnight lending rate to 12% from 7.75% after an emergency meeting.

It also increased the overnight borrowing rate to 8% from 3.5%.

The move was intended to help stabilise the value of the lira, which plunged in recent days amid ongoing turmoil across emerging markets.

The lira immediately strengthened after the central bank announcement, to 2.2 lira to the US dollar, from 2.253.

The Turkish central bank had been slow to act amid fears that a rate rise could hurt the economy.

In a statement, the bank said the move was intended to combat inflation, which reached 7.4% in December.

Global woes

The Turkish government has forecast that growth will pick up from an expected rate of 3.6% in 2013 to 4% for this year.

Those figures are sharply down from the 8% growth Turkey achieved in both 2010 and 2011.

The cost of Turkey's debt had also been rising rapidly with the price of 10-year bonds hitting a three-year high, as investors worried that a bribery scandal could destabilise the government.

The Turkish central bank hopes that by raising interest rates, investors will be drawn to place their funds in Turkish banks, which would help boost the value of the lira.

But Turkey is not the only emerging economy that has been hurt in recent days because of ongoing worries of a global slowdown.

Argentina and Ukraine have been working to stabilise their currencies in the face of investor nervousness.

And in the US, the Federal Reserve is expected to continue to withdraw its extraordinary stimulus measures at the end of a two-day meeting on Wednesday - which is also causing some concern in the markets.

Through a policy known as quantitative easing, the US central bank has been buying billions of dollars of long-term debt in an effort to keep interest rates low and stimulate the US economy.

But many investors fear that as this programme is drawn down, interest rates not just in the US but around the world could rise, and adversely impact emerging economies in particular.

More on This Story

Related Stories

More Business stories

RSS

Features

  • Polish and British flags alongside British roadsideWar debt

    Does the UK still feel a sense of obligation towards Poles?


  • Alana Saarinen at pianoMum, Dad and Mum

    The girl who has three biological parents


  • Two young Red deer stags practice their rutting in the long grass in Richmond Park, London - 1 September 2014Day in pictures

    The best news photos from around the world in the past 24 hours


  • Islamic State fighters parade in Raqqa, Syria (30 June 2014)Who backs IS?

    Where Islamic State finds support to become a formidable force


From BBC Capital

Programmes

  • Art installationClick Watch

    How one artist is using computer code to turn internet radio into a unique piece of music

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.