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Investing.com -- Turkey’s central bank has increased its one-week repo rate to 46% from the previous 42.5%, a decision that contradicts its earlier trend of rate cuts. This move comes as political unrest threatens to impede the bank’s attempts to control the country’s high inflation.
The bank’s decision to raise the rate was unexpected, as economists polled by FactSet had predicted that the rates would remain stable.
The Turkish lira has been experiencing erratic fluctuations since last month when President Recep Tayyip Erdogan’s primary opponent in the forthcoming presidential election, Istanbul Mayor Ekrem Imamoglu, was jailed. The opposition has labeled the charges against Imamoglu as politically motivated.
Imamoglu’s arrest sparked widespread protests and led to subsequent arrests, which in turn triggered a sell-off in the lira. However, this has not yet resulted in a new wave of inflation.
Despite this, the strain on the country’s currency reserves has been so intense that it necessitated a rate hike, according to Timothy Ash, a Chatham House fellow specializing in emerging markets, including Turkey.
Ash believes that the rate increase is the correct decision and stated, "I think disinflation should be rapid from here now given global trade wars will slow the global economy and cut commodity import prices for Turkey, and this should enable them to cut, and perhaps quite aggressively again, by year-end."
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