Turkey’s Central Bank Surprises Markets with Bumper Rate Hike
In a bold move, Turkey’s central bank raised its key interest rate by 500 basis points to 50 percent, catching investors off guard and sparking a rally in the country’s assets. The unexpected rate hike boosted international sovereign bonds, lifted the lira off recent lows, and bolstered banking stocks, according to Reuters.
The central bank cited a deteriorating inflation outlook as the reason for the rate hike, pledging to maintain a tight policy stance until a significant and sustained drop in inflation is seen. This move signals the bank’s readiness to take aggressive action, regardless of the upcoming local election on March 31.
EM portfolio manager Peter Kisler at Trium Capital in London described the rate hike as a “pleasant surprise,” highlighting the capacity of Finance Minister Mehmet Simsek and the central bank to act decisively.
Following the announcement, the lira strengthened to 31.91 against the dollar, its highest level since March 7, before easing slightly to 32.16 by 14:54 Saudi time. International dollar-denominated bonds also saw gains, with the 2038 bond posting a 2.43 cent increase to trade at 96.1 cents on the dollar, its highest level since early January.
Local government bonds joined the rally, with the yield on the 10-year benchmark dropping to 24.52 percent. ING’s EM sovereign strategist James Wilson noted that sentiment towards Turkish assets should improve, easing concerns about currency pressure and the central bank’s foreign exchange reserves.
Turkish bank stocks surged around 4 percent, while the broader Istanbul stock market climbed more than 2 percent, reflecting the positive market reaction to the central bank’s unexpected rate hike.