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Turkey’s Hidden Rate Hike Buys Erdogan Time But Raises Risks

  • Government promises higher returns on lira when currency falls
  • Critics say it’s an implicit rate hike without the benefits
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WATCH: The lira’s rally came after President Recep Tayyip Erdogan announced new measures to bolster the currency.Source: Bloomberg
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Turkey’s emergency measures to bolster the volatile lira are in effect an interest rate hike in disguise, steps that leave the government budget more vulnerable to future currency shocks. 

The Turkish currency had lost more than 50% of its value against the dollar since September as President Recep Tayyip Erdogan leaned on the central bank to slash borrowing costs in an effort to lure investment and shore up his waning popularity. A rescue plan announced Monday promised investors protection from the currency’s wild swings and sent the lira soaring, something that may buy Erdogan time politically ahead of 2023 elections.