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Friday, 14 September 2018 00:00

Central Bank of Turkey interest rate rise of 6.25%

Central Bank of Turkey Central Bank of Turkey

The Monetary Policy Committee of the Central Bank of Turkey (CBT) met yesterday to review interest rates.  They decided to increase their base lending rate by a massive 6.25% to 24% - more than the markets were expecting.

The Turkish lira strengthened against the major currencies on this news.  The GBP v TRY exchange rate went down to 7.85 at one point yesterday but closed the day at around 8.00.

This was a really tough decision for the CBT.  High interest rates hit borrowers hard - both businesses and individuals, and the President of Turkey has expressed his displeasure at such high rates, but the CBT must believe it was a necessary move to protect the currency which has devaluated significantly over recent times.

For those who have bank deposits in Turkish lira this means higher rates.  You have to go back more than a decade to find savings rates above 20%.  And now the tax paid on interest earned is even lower - just 5% for investments with a term of under six months.

On a related finance matter President Erdoğan has this week appointed himself as chairman of Turkey's soveriegn wealth fund and Finance Minister Berat Albayrak as the deputy.  The fund was founded in 2016 and manages government shareholdings.  According to Bloomberg the fund has assets worth over US$200 billion.

The rate of inflation in Turkey currently stands at 17.9%.

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