[Asia Economy Reporter Jeong Hyunjin] The Central Bank of Turkey on the 22nd (local time) kept the benchmark interest rate unchanged. Although the market had a high expectation of a rate hike, the unexpected decision to maintain the benchmark rate caused the Turkish lira to plunge to an all-time low.
According to Bloomberg News, the Central Bank of Turkey announced at the Monetary Policy Committee meeting that it would keep the one-week repo (repurchase agreement) rate, the benchmark interest rate, at the current 10.25%. The Central Bank had raised the rate last month for the first time in two years.
The Central Bank of Turkey gradually lowered the benchmark rate from 11.25% in January this year to 8.25% in May. After holding it steady for four months, it raised the rate last month to defend the value of the Turkish lira.
Initially, the market expected the Central Bank of Turkey to raise the benchmark rate to 12%. This was because the sharp decline in the Turkish lira's value left no choice but to respond. Generally, raising the benchmark interest rate increases the value of the domestic currency against foreign currencies.
Immediately after the Central Bank of Turkey's decision, the Turkish lira exchange rate hit a record high of 7.9786 lira against the dollar during the day. The lira's value fell to its lowest level ever, breaking the previous record set just fifteen days ago on the 8th.
Bloomberg reported, "Turkey unexpectedly kept the benchmark interest rate unchanged," adding that further volatility in the lira could pose risks.
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