The Turkish lira firmed up yesterday after comments from Treasury and Finance Minister Berat Albayrak created expectations of an interest rate hike by the Central Bank of the Republic of Turkey (CBRT) at a monetary policy meeting today.
The lira rose 0.8 percent against the U.S. dollar and traded below 4.75, leading emerging currency gains, ahead of today's central bank meeting. Markets expect rates to rise 100-125 basis points after inflation hit a 14-year high in June.
Those expectations were strengthened when Minister Albayrak was quoted as saying that Turkey would not fight with markets but pursue a "win-win" relationship with them.
Rabobank strategist Piotr Matys said Albayrak's comments were "constructive," highlighting his defense of central bank independence and economic reforms.
Turkish stocks also rose, gaining 1.4 percent to hit a two-week high while the banking sector rallied 2.3 percent.
Meanwhile, Minister Albayrak met with some economists, columnists and bankers in Istanbul yesterday and exchanged views on the Turkish economy.
It was reported that the minister provided a general evaluation of his meetings at the G20 finance ministers' meeting over the weekend.
At its latest meeting last month, the CBRT's Monetary Policy Committee (MPC) ramped up interest rates for the second time in two weeks as it hiked its policy rate, also known as one-week repo auction rate, by 125 basis points.
The MPC decided to increase the policy rate from 16.5 percent to 17.75 percent, the statement by the CBRT said.
The decision came after the central bank hiked its late liquidity window rate by 300 basis points to 16.5 from 13.5 percent on May 23 after an extraordinary meeting in order to stem the slide in the Turkish lira, which fell to 4.93 against the dollar on the same day.
The CBRT has raised interest rates by 500 basis points since April 25. With its latest move, the interest rate increase carried out by the bank since the beginning of 2017 has reached 950 basis points.
The bank's move was designed to tamp down inflation and stabilize the Turkish lira, while also sending a strong message to markets about its future policies whereby it will take necessary measures to control inflation and declining lira.