Skip to main content

Turkey may be on the path toward a 300 basis-point interest rate increase with barely a whisper from the central bank as the country struggles to contain a currency crisis that’s reverberating around the world.

By shutting banks off from borrowing at the benchmark 17.75 per cent repo rate, and forcing them to turn to the overnight lending rate – currently at 19.25 per cent – policy makers have effectively enacted a 150 basis-point hike within a week. Should they close down the overnight market too, it would compel borrowers to turn to the emergency late liquidity window, where rates currently stand at 20.75 per cent.

“The repo rate is no longer relevant because all the funding is done at the overnight lending rate,” said Ziad Daoud, the chief economist for the Middle East at Bloomberg Economics in Dubai. “It’ll be interesting to see whether the central bank will stop here or or whether it’ll use the late liquidity window to lift rates further.”

Story continues below advertisement

The central bank is trying to counter the slump in the lira without formally raising its benchmark interest rate, a move opposed by President Recep Tayyib Erdogan. The president says that higher interest rates fuel inflation – a view at odds with economic orthodoxy – and will kill off economic growth. The lira slid 20 per cent in the past month, triggering concern about contagion in other emerging markets grappling with fears of a trade war, reduced stimulus in the developed world and falling commodity prices.

Despite a rebound in the middle of the week, the lira resumed a sell-off Friday and traders will probably remain on edge as they wait to see whether the United States imposes more sanctions. Turkey’s credit rating was cut further into junk by S&P Global Ratings Co. and Moody’s Investors Service Co., which said the volatile currency and wide current-account deficit may undermine the Middle East’s largest economy. Lira trading is likely to be thin in coming days due to a week-long holiday.

Report an error
Comments

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • All comments will be reviewed by one or more moderators before being posted to the site. This should only take a few moments.
  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed. Commenters who repeatedly violate community guidelines may be suspended, causing them to temporarily lose their ability to engage with comments.

Read our community guidelines here

Discussion loading ...

Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.
Cannabis pro newsletter