Turkish central bank raises rates to stop lira's dive

Photo: Markus Merz

The surprise decision was taken after an emergency late night meeting discussing how to stabilise the Lira's value, which has plummeted recently. The Turkish bank in the past has been reluctant to raise rates for fear of deterring investment and harming the economy.

The lira lost about 16 per cent against the dollar and 17 per cent against the euro following the arrest of three cabinet ministers' sons in December for corruption, reports Reuters.

The news tarnished Prime Minister Recep Tayyip Erdogan's government, which has enjoyed strong economic growth in Turkey. Turkey's economy has boomed in 2010 and 2011, growing 8 per cent and spurring confidence from businesses and investors. Now, though, the emerging country's economic growth has slown down, with the government forecasting expansion of 4 per cent in 2014 from an estimated 3.6 per cent 2013.

The fall in Turkey's Lira has been hailed by some investment firms as a good buying opportunity for international real estate investors, while fellow emerging economies Argentina and Ukraine have also struggled to stabilise their currency amid uncertainty.

But now the bank has raised interest rates in an attempt to shore up the currency. The hope is that higher interest rates will make saving money in Turkish banks more attractive, helping to stabilise the Lira.

Indeed, the BBC reports that the Lira "immediately strengthened" following the statement.