Turkish lira flat after rate hike gains, investors look to government plan

© Reuters. A money changer counts Turkish lira bills at an currency exchange office in central Istanbul, Turkey

ANKARA (Reuters) – The Turkish lira traded flat on Friday, as investors weighed the impact of Thursday’s hefty 625 basis point rate hike and looked ahead to a new economic plan slated to be unveiled next week.

The central bank on Thursday raised its benchmark rate to 24 percent in the biggest such hike in President Tayyip Erdogan’s 15-year rule, boosting the lira and possibly easing investor concerns about the bank’s independence.

The lira has lost more than 40 percent of its value this year on the back of investor concerns about Erdogan’s influence on monetary policy and an ongoing row with the United States that has resulted in reciprocal sanctions and trade restrictions.

On Friday, the lira stood at 6.0342 to the dollar at 0728 GMT. The lira’s implied volatility gauges also fell to their lowest levels in more than a month, as sentiment continued to improve.

The bank’s decision came hours after Erdogan, a self-described “enemy of interest rates”, reiterated his opposition to high interest rates and blamed Turkey’s high inflation on the central bank’s wrong steps.

With Thursday’s rate hike, the bank has now raised interest rates by 11.25 percentage points since late April in an attempt to prop up the ailing lira. Key rates now stand at their highest level since 2004, around a year after Erdogan first came to power.

Late on Thursday, Finance Minister Berat Albayrak told pro-government newspaper Sabah that the central bank’s move had put an end to any discussions about the bank’s independence, and said Turkey would unveil its medium-term economic program on Sept. 20.

Albayrak, who is also Erdogan’s son-in-law, said the three-year business plan would put forth “realistic macro targets” with the “right action plans” toward the economy’s problems.

Erdogan and his government have cast the lira crisis as an “economic war” against Turkey, repeatedly urging Turks to sell their foreign currency savings to shore up the lira.

In an attempt to support the currency, the central bank and government have taken a series of measures in recent weeks, with Erdogan ruling early on Thursday that property sales and rental agreements must be made in lira, putting an end to such deals in foreign currency.

On Thursday, Erdogan again said the volatility in the currency was “artificial” and vowed that his country would emerge stronger from the period ahead if Turks stood tall against the attacks.

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