January 28, 2014
The Turkish central bank raised its overnight lending rate to 12% from 7.75% and the overnight borrowing rate to 8% from 3.5% in a surprisingly strong move to defend the country’s embattled currency.
The lira immediately strengthened to 2.2 to the dollar from 2.253 after the decision. The rate hike was much sharper than expected; eight economists polled by the Wall Street Journal had expected an increase of three percentage points at the most.
Dow futures spiked 150 points as well on the closely watched move.
“Taking such an aggressive measure restores confidence and also limits spillover effects in other markets,” BK Asset Management managing director Kathy Lien told Reuters.