Turkey’s central bank unexpectedly raised its overnight lending rate by two percentage points on Thursday to bolster the lira after the currency sharply declined following the detention of the mayor of İstanbul, Bloomberg reported.
The overnight lending rate was increased to 46 percent, while the benchmark one-week repo rate remained unchanged at 42.5 percent. The bank said the move aims to tighten monetary policy further in response to potential inflation risks following the lira’s 11 percent plunge on Wednesday.
This comes after İstanbul Mayor Ekrem İmamoğlu, a leading opposition figure and possible rival to President Recep Tayyip Erdoğan, was detained.
In a statement the central bank emphasized that it is ready to further tighten monetary policy if inflation pressures continue.
Following the announcement, the lira briefly recovered before trading slightly lower at 37.9216 against the dollar in late afternoon trading.
On Wednesday Turkish banks intervened in currency markets, selling an estimated $8 billion to $9 billion in foreign currency reserves, according to a central bank official.
Turkish bank stocks fell by as much as 9 percent Thursday amid uncertainty over future monetary policy decisions.