Turkey's lira currency was slightly firmer against the dollar on Thursday, after the central bank's rate increase a day earlier failed to assuage concerns about its ability to rein in double-digit inflation. Turkey's central bank on Wednesday raised its top interest rate by 75 basis points to 13.50 percent after the lira hit a series of record lows this year. But analysts said the hike - although bigger than the 50 basis point increase expected by the market - was still not enough to fight inflation and support the currency.
President Tayyip Erdogan, a self-described "enemy of interest rates", has repeatedly called for lower borrowing costs to boost construction and spur economic growth. Investors see that as pressure on monetary policy. "It seems likely that the lira will come under renewed pressure before too long," William Jackson of Capital Economics said in a note to clients following the decision by the bank's monetary policy committee (MPC).
"The widening of the current account deficit and the likelihood that inflation will rise in the coming months means the MPC will have to tighten policy further." The lira was at 4.0680 to the dollar at 0939 GMT, firming from Wednesday's close of 4.0800. It is one of the worst performing emerging market currencies so far this year, down some 7 percent. Inflation hit a 14-year high of 12.98 percent in November but has since eased somewhat to 10.23 percent. The central bank's latest survey showed economists' inflation expectations for the year-end have worsened in the last month - to 10.07 percent, from 9.49 percent. It remains well above the bank's target of 5 percent.
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