ANKARA: Turkey's currency rallied on Wednesday after the central bank aggressively raised its key interest rates in a bid to stop a tumple in lira.
The bank, in an overnight crisis meeting, hiked its overnight lending rate to 12 percent from 7.75 percent, the overnight borrowing rate from 3.5 percent to 8 percent, and one-week repo rate to 10 percent from 4.5 percent.
The lira was at 2.1725 to the dollar and 2.9702 to the euro in early Wednesday trading.
The was down from the 2.25 to the dollar and 3.09 to the euro quoted just before the central bank held a midnight crisis meeting to decide the rate jump.
But the lira was far stronger than the record lows recorded over the past few weeks. On Tuesday, for instance, the Turkish currency was languishing at 2.36 to the dollar before the bank announced its crisis meeting.
The bank had said it was ready to tighten monetary policy in a "lasting way" after the lira was battered by political uncertainty generated by a graft probe that has taken down some of the government's key allies.
But the government's bald opposition to the hike had left some doubt as to how decisive the action would be.
"I am opposed to interest rate increases now as I always have been," Prime Minister Recep Tayyip Erdogan said, though he acknowledged the bank was independent.
"They will be held accountable for anything that could emerge tomorrow," he said.
Erdogan's government wanted rates held down to sustain growth ahead of an election cycle beginning with March local polls.
Analysts said the central bank's governor Erdem Basci defied the government with the bold action it had taken, but reckoned the move also helped the bank gain credibility lost after months of inaction.
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