Turkey interest rates to rise Weds

Lira down 16.5% since May 1

The Central Bank of the Republic of Turkey (CBRT) is expected to raise interest rates at an emergency meeting on Wednesday in order to support the Turkish lira, which has taken a battering as investors have pulled out of emerging markets in the past few weeks.

The lira has fallen by 16.5% against the dollar between May 1 and June 5.

Rates are expected to rise at least 25 basis points. The CBRT borrowing interest rate is currently 13.25%, and the CBRT lending interest rate is currently 16.25%.

The CBRT, which has established a good record in recent years of fighting inflation, has not raised rates since July 2001.

The central bank Monetary Policy Committee ordered a meeting for June 7 after inflation figures on Friday came out higher than expected.

Inflation in May was 1.9% month on month and 9.9% year on year, compared with the government’s year-end target of 5%.

A rising current-account deficit is also a cause for concern. The trade deficit in April was a record USD 5.2 bln and the current-account deficit for the same month is also expected to show a sharp increase.

Historically an unstable Turkish lira also affects the econoym of northern Cyprus, where the Turkish lira is the de facto currency of use.

There are now renewed calls among Turkish Cypriots for a unilateral adoption of the euro.

Fiona Mullen