Europe Votes To Suspend Turkey EU Accession Talks, Sending Lira Crashing To Record Low Despite Unexpected Rate Hike

It was another painful day for Turkish Lira longs.
Earlier today, in response to the broader USD strength overnight, the Turkish currency dropped to new record lows, sliding to 3.4214 and losing 10% of its value since the central bank’s last meeting in October, before the Turkey’s central bank unexpectedly raised its one-week repurchase and overnight lending rates for the first time in almost three years, prompted by the crashing lira’s impact on inflation, overriding Erdogan’s recurring demands for lower borrowing costs.
The bank raised the one-week repo and overnight lending rates by 50 and 25 basis points to 8% and 8.5% respectively while keeping the overnight borrowing rate at 7.25%, it said in a statement on Thursday. The move came as a surprise as only seven of 24 economists polled by Bloomberg predicted an increase of 25bps to the repo rate, while the majority said rates would be unchanged.
On one hand, raising rates may aid the bank’s sliding credibility after investor sentiment deteriorated after July’s attempted coup according to Sakir Turan of Odeabank. ‘The decision shows the central bank is serious about inflation outlook and has the capability to act,’ Turan told Bloomberg by phone after the bank’s decision.
Oon the other hand, the decision may simply force Erdogan to scrap the central bank’s independence altogether and install more political overseers to do his bidding which for the past few months has been to push rates in Turkey lower. The central bank lowered the overnight lending rate for seven consecutive months from March amid political pressure on the bank to take steps to boost the economy, and President Recep Tayyip Erdogan said on Wednesday rates hadn’t been lowered enough.

This post was published at Zero Hedge on Nov 24, 2016.

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