Despite the Lira's Value Plunge... Turkish Central Bank Unexpectedly Holds Key Interest Rate Steady

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] The Central Bank of Turkey on the 22nd (local time) decided to keep the benchmark interest rate unchanged. Despite the continuous plunge in the value of the Turkish Lira, the bank chose not to alter the benchmark rate for now.

According to Bloomberg News, the Central Bank of Turkey announced at the Monetary Policy Committee meeting that it would maintain the one-week repo (repurchase agreement) rate, the benchmark interest rate, at the current 10.25%. The Central Bank had raised the rate last month for the first time in two years.

The Central Bank of Turkey had gradually lowered the benchmark rate from 11.25% in January this year to 8.25% in May. After holding it steady for four months, it raised the rate last month to defend the value of the Turkish Lira.

Initially, the market expected the Central Bank of Turkey to raise the benchmark rate to 12%. This was because the sharp decline in the Turkish Lira's value left no choice but to respond accordingly. Generally, raising the benchmark interest rate increases the value of the domestic currency against foreign currencies. The Turkish Lira exchange rate soared to 7.9449 per dollar on the 8th, reaching an all-time low in value.

Bloomberg commented, "Turkey unexpectedly kept the benchmark interest rate unchanged," and noted that additional volatility in the Lira could pose a risk.

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