Lira Surges as Central Bank Defies Erdogan and Raises Rates

(Bloomberg) -- The Turkish lira jumped more than 5 percent after the central bank raised interest rates, defying President Recep Tayyip Erdogan’s calls for lower borrowing costs.

The currency reversed an earlier slide after the central bank raised its one-week repo rate by 625 basis points to 24 percent. The median estimate in a Bloomberg survey was for a 350-basis-point hike.

Erdogan, speaking only hours before the decision, attacked the central bank for continuously missing inflation targets and said Turkey should cut rates. That spooked investors who worry his belief that rate hikes only lead to faster price gains is standing in the way of effective policy action needed to anchor the nation’s assets.

The lira rose 5.3 percent to 6.0272 per dollar by 2:03 p.m. in Istanbul.

Inflation accelerated to almost 18 percent in August, eroding the real yield on the currency and leaving it exposed to higher borrowing costs in the U.S. and shaky investor appetite for emerging-market assets.

To contact the reporter on this story: Constantine Courcoulas in Istanbul at ccourcoulas1@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, Anil Varma

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