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October 22, 2019

Central Bank of Turkey raised one of its interest rates

Turkish liraCentral Bank of Turkey raised one of its interest rates in an attempt to curb double-digit inflation. The monetary regulator raised the interest rate charged by banks that want to borrow funding just before the closing of the stock exchange session. The rate rises from 11.75% to 12.25%.

Since January, the Central Bank of Turkey has been endeavoring to encourage banks to use this tool, which was not particularly popular before, with the regulator’s aim of curbing liquidity. This late liquidity window rate is higher than the rest, and is now at its highest level of nearly five years. In this way, the bank also supports the currency. Another rise in interest rates may allow the bank to protect the currency by changing the mix of funding without having to wait until its next meeting in June.

The remaining three key interest rates remain unchanged. The one-week repo rate remains at level of 8%, the overnight lending rate remains 9.25%, and the overnight interest rate on deposits remains 7.25%.

The advantages of a high interest rate on the so-called Late borrowing is more than a drawback. Despite the improved external conditions, the risks to the currency remain and the rate increase will give the bank additional flexibility.

The Turkish lira depreciates by 0.05% to 3.5817 pounds per dollar.

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