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ISTANBUL – The Turkish central bank raised interest rates by more than 6 points on Thursday as part of a much-awaited decision to deal with the economic crisis.
The central bank has increased its main interest rate from 17.75% to 24%, due to worries related to rising inflation.
The monetary policy decision could help ease investors' concerns over the central bank's independence from Turkish President Recep Tayyip Erdogan, whose call to cut rates Thursday morning had weighed heavily on the read.
"It was much bigger than expected. It sends a signal to the market and it's a good signal, "said Kevin Daly, portfolio manager for emerging market debt at Aberdeen Standard Investments. "This gives you a confidence in the read that you might be able to buy this thing again."
The central bank has been heavily solicited by international investors to raise rates in order to control inflation and stabilize the pound, which has lost about 40% against the dollar this year as investors fear more and more debt.
Last week, the central bank is committed to act when official statistics showed that inflation had reached nearly 18% in August, compared to just over 10% at the beginning of the year .
Prior to the rate decision, Erdogan also announced measures to support both the lira and the country's heavily indebted real estate sector by limiting currency transactions.
It banned foreign currency transactions and foreign currency-denominated book transactions, an edict aimed at supporting Turkish real estate developers who have taken billions in foreign currency debt in recent years. Transactions made in foreign currencies must be converted into pounds within 30 days at rates to be agreed between the parties, depending on the judgment.
Under the leadership of Erdogan, Turkish companies have become fed up with foreign currency loans. A large portion of these loans has been invested in the construction of many buildings, resorts and shopping centers, where developers often set rents in euros or dollars.
"Those who do not deal with the import or export should not cross with foreign currencies," said Erdogan in a televised speech from Ankara. "Business in our country must be done in our motto."
–Georgi Kantchev contributed to this article
Write to David Gauthier-Villars at [email protected]
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