Turkey raises key interest rate
ANKARA - Turkey's central bank on Wednesday hiked one of its main interest rates as the lira faces pressure and inflation remains high ahead of snap polls in June.
The bank said in a statement that it lifted the late liquidity window (LLW) interest rate by 75 basis points from 12.75 percent to 13.5 percent.
Economists had expected a 50bps rate increase in the LLW and it is the first rise since December.
The Turkish lira rose to nearly 0.7 percent against the US dollar at 4.05 immediately after the announcement by 1200 GMT it was at 4.09 against the greenback.
Inflation is at 10.23 percent, double the central bank's official target of 5 percent.
The bank said on its website the overnight lending rate would remain at 9.25 percent in line with expectations.
The one-week repurchasing (repo) rate remained unchanged at 8.0 percent and the overnight borrowing rate was kept at 7.25 percent.
The central bank employs multiple interest rates -- which it often changes at different times -- in a complex monetary policy strategy.
The LLW hike comes after President Recep Tayyip Erdogan last week announced snap presidential and parliamentary elections on June 24, 2018 instead of November 3, 2019.
The elections are significant because they will bring in the new executive presidency approved in the April 2017 referendum, boosting the president's powers.
There has been speculation inside parliament and among experts that Erdogan made the move because of fears over the economy worsening.
The central bank said the monetary policy committee decided to "implement a measured monetary tightening to support price stability".
Gokce Celik, chief economist at QNB Finansbank, said in a note that Turkey's "strained relations with its Western allies, especially the US, and/or rising global rates and energy will continue posing depreciation pressures on the currency in the medium term".
But after the bank suggested it could tighten monetary policy further if it was necessary, Celik said it might have to raise rates again in 2018.
"In addition to... risks from the currency front, upward trend in energy prices, if continued, will weigh on the inflation outlook as well.
"In this context, we think the bank's 'further monetary tightening will be delivered, if needed' bluff will likely be called again, later this year," Celik added.