Turkey's lira wobbled in volatile trade on Friday, as investors attempted to gauge prospects for another increase in interest rates two days after an emergency hike by monetary authorities struggling to stabilise the currency. The central bank lifted its top interest rate by 3 percentage points to 16.5 percent on Wednesday, in an effort to avert a full-blown lira crisis. It has fallen some 20 percent this year, hit by concern about President Tayyip Erdogan's strengthening influence on monetary policy.
The lira was trading at 4.7245 to the dollar at 1411 GMT, nearly half a percent weaker from the previous day's close. It had weakened as much as 2 percent in early trade before partly recovering after central bank said it would allow some foreign currency debt to be repaid at fixed lira rates. Friday's central bank move, designed to ease the debt burden on companies, affects about $3.5 billion of debt repayments, bankers said.
The yield on Turkey's benchmark 10-year bond was flat on Friday. The main BIST 100 share index rose 2 percent to 103,179. Erdogan, a self-described "enemy of interest rates", wants lower borrowing costs to fuel credit growth and expansion ahead of June elections. Investors fear the economy is overheating and want substantial rate increases to tame inflation.
They have been particularly unnerved by comments by Erdogan last week that he would look to take greater control over monetary policy after elections next month. Deputy Prime Minister Mehmet Simsek, a former Wall Street banker, on Friday sought to soothe investor worries. "We understand the concerns of the market. We understand the worries that investors might have. We took the necessary steps to address these concerns and we will continue to do so," he said in an interview with broadcaster NTV.
"The central bank showed that it is independent and it would do whatever is necessary when it is necessary." Simsek and the governor of the central bank, Murat Cetinkaya, are due to meet with investors in Turkey on Sunday, bankers said. Next week they are due to do likewise in London.