Turkey's lira jumps to a 5-week high against the dollar

The Turkish lira jumped to a five-week high on Thursday after a bigger-than-expected interest rate hike that raised investors confidence about the central bank’s ability to bring inflation under control, reports Reuters.

The lira firmed over 1% to as much as 7.5420 per US dollar compared to the previous close of 7.6361. The currency was last trading at 7.5691.

The central bank hiked rates by 200 points to 17% in order to cool double-digit inflation and record dollarisation as new Governor Naci Agbal sought to bolster its policy credibility.

The tightening follows a hefty hike of 475 points last month in a bid to permanently lower inflation, which stood at 14% in November.

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“It is a strong signal that the central bank is fully committed to rein in inflation,” said Piotr Matys, senior emerging markets FX strategist at Rabobank. “This bodes well for the lira and supports our view that the Turkish currency has the potential to extend its gains in 2021 beyond the 7.00 level versus the dollar.”

The lira has been among the worst hit developing world currencies – down about 23% this year and dropping to a record low at one point – as a surge in coronavirus cases brought lockdowns, and investors worried about high inflation rates and depleting foreign exchange reserves.

Read: Turkish lira gains ground as Erdogan pledges structural reforms