Central Bank Raises Interest Rate to Save Lira

Turkey’s Central Bank put up its key lending rate on May 23 to try to control inflation, stem an outflow of capital from the country and support the embattled currency.

After the Bank’s monetary policy committee held an emergency meeting, it announced that it was raising the rate from 13.5 percent to 16.5 percent,. The lira rallied to regain some of its value. It rose to around 4.58 against the dollar, after it had fallen to over 4.80 per dollar, down about 5 percent since Tuesday.

The Turkish Central Bank was forced to act despite President Recep Tayyip Erdoğan’s demand that rates be kept low.

Higher rates can support a currency and ease inflation. However, they also tend to hamper economic growth by increasing borrowing costs and can create public discontent, the Associated Press reported.

Since the beginning of the year, the lira has lost more than 20 percent of its value against the dollar, raising concerns that imports would become more expensive for the Turkish people. A faltering currency can also lead investors to pull out if they expect the value of their investments to fall as the currency weakens.


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