Turkey Central Bank Pledges Tough Stance To Stabilize Lira

(RTTNews) - The Turkish central bank is gearing up for aggressive policy tightening to stem further decline in the lira, Governor Erdem Basci hinted on Tuesday.

In a press conference held to publish the latest Inflation Report, Basci said the central bank is ready to use all tools to achieve its 5 percent inflation target. The central bank will also consider permanent policy tightening if necessary, he said.

The central bank is set to hold an extraordinary policy session later today and announce the outcome at midnight (10 pm GMT). The meeting was announced yesterday.

Economists are looking forward to a significant rate hike. They expect the overnight lending rate to be raised to 10 percent from 7.75 percent.

Last week, the central bank left its main policy rates unchanged, apparently yielding to political pressure.

Basci denied allegations that the central bank is under political pressure to refrain from interest rate hikes and assured the bank's independence. Prime Minister Tayyip Erdogan has been resisting interest rate hikes in a bid to support growth ahead of elections.

Also on Tuesday, the bank raised its inflation forecast for this year to 6.6 percent from 5.3 percent. Inflation is forecast at 5 percent by the end of next year.

Tax adjustments made in January will add around 0.5 percentage points to year-end inflation and exchange rates are expected to contribute another 0.5 percentage points, the bank said in the report.

The Turkish lira is the hardest hit among emergency market currencies in recent months amid Fed tapering concerns and the corruption scandal in the country has made matters worse. The currency recovered slightly after the bank's announcement of emergency meeting yesterday and Basci's comments today.

In a speech on Tuesday, Erdogan said the resilience of the Turkish economy has not been hurt by the sabotage campaigns.