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The Central bank of Turkey failed to contain the devaluation of the lira

The Central bank of Turkey failed to contain the devaluation of the lira
 

By Manolis Kostidis - Ankara

The attempt of the Central Bank of Turkey to halt the devaluation of the lira by increasing the interest rates has apparently ended in failure.

The Central bank increased the overnight interest rate from 7.75% to 12%, the repurchase term interest rate with one week duration from 4.5% to 10% and the overnight lending interest rate from 3.5% to 8%.

It also raised the interest rate for the emergency liquidity lending facilitation from 10.25% to 15% - the highest interest rate towards the turkish banks should they need to lend just before the closure of the local stock exchange.

Despite this intervention however, the lira has been devaluated by 0.44% against the dollar and 0.33% against the Euro.

The president of the Anadoglu Group, Τuncay Ozilhan, reports that ”the decision was taken late. At this point raising the interest rates did not reduce the devaluation. We should not forget that the currency between the lira and the dollar a few months ago was 1.7 and now it has reached 2.22. In little while more the banks will be unable to keep up. The interest rates for loans will increase. At the same time the prices of the raw material and energy will go up. I believe that the industrial sector will feel the impact in 3-6 months. Inflation will increase and there will be a reduction of growth. If demand decreases as well, then we will have an increase in the unemployment rate".

The president of the Şahinler Group, Kemal Sahin, reports that "the increase of the interest rates will negatively affect the real economy. The main sectors that will be affected will be the construction and the building, because they are heavily depended on loans. This will have an effect to the state budget and employment. If now except from the currency we have to deal with the interest rates, then the economy will go off balance again".

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